Inflation dynamics in the high inflation period

By studying price developments at the micro level, one can gain a better understanding of the underlying price dynamics and of firms’ pricing behaviour. An earlier study by the Riksbank showed that it is primarily the relationship between how often prices are raised and lowered that explains price developments over time, while the variation in the size of the price changes primarily explained the seasonal pattern in consumer prices. In this Economic Commentary, the authors have updated the calculations with data from the period 2019-2024.

The results clearly show how this aspect of firms' pricing behaviour has changed during the high inflation period. Firms raised prices more frequently, while the average size of price changes remained relatively unchanged. As inflation has normalised, so has the frequency of price changes, and now, at the beginning of 2024, price-setting behaviour appears to be more in line with how it was before the high inflation period.

Authors: Mathias Klein, Klara Strömberg and Oskar Tysklind, who work at the Monetary Policy Department.