What is inflation?
Inflation means that you can buy fewer goods and services for the same amount of money. Thus, our money decreases in value over time. However, if the price of a single item, such as ice cream cones, rises, it does not necessarily mean that we have inflation. Inflation refers to an increase in the general price level in society.
Therefore, one needs to find out how much prices have risen for a variety of goods and services to calculate inflation. In Sweden, Statistics Sweden - or SCB - is responsible for this.
Inflation can be good
The opposite of inflation is deflation. This means that prices are falling while the value of money increases. This can be an even worse scenario than high inflation. When prices fall, people wait to make purchases because goods and services become cheaper over time. At the same time, there is a risk that companies will stop investing, which can lead to increased unemployment and reduced wages. Thus, severe deflation slows down the economy.
How do you calculate inflation?
Every month, SCB collects prices for a large number of goods and services. Prices are collected online, via email, by phone, or through visits to stores where they simply check how much items cost.
By adding up the prices of all goods, SCB then estimates the general price development in Sweden. This is usually expressed by a measure called CPI, or Consumer Price Index.
Not everything becomes more expensive
It's not just what we buy that becomes more expensive. Salaries also rise as inflation increases. As long as wages increase as much as prices, things don't necessarily become more expensive for the consumer, even if the price is higher.
In Sweden, we aim for inflation to be around two percent per year. This means that the prices of goods and services should increase by two percent, and wages should rise by approximately the same amount.
Hyperinflation
Controlling inflation is sometimes easier said than done. If inflation rises uncontrollably, a condition called hyperinflation can occur. This means that inflation increases by at least 50 percent per month, or 500 percent in a year.
