Inflation has been low all over the world for a long time now, even before Corona hit. The 2% inflation target that Stefan Ingves and Co. over at the Swedish Fed has been trying to hit for a few years has been maddeningly elusive. Unfortunately, it just got worse. The three-syllable word has been uttered – deflation.
Deflation is what it’s called when prices actually go down. This April, the KPIF measure was at -0.4% ( omni.se/ekonomi ). KPIF is the consumer price index, plus fixed interest loans. (KPI alone measures the goods and services that people use, including house loans; KPIF adds in loans with fixed interest.) Although no one’s loans are costing less, enough is costing less (mainly energy costs) that there’s some worry about it at Riksbanken. Deflation would be bad: lower prices actually lead to consumers spending less which makes factories produce less leading to layoffs leading to less demand and even lower prices. Deflation means circling the drain.
It’s not that bad yet – inflation was at 1% if fixed rate loans weren’t taken into account – but even 1% isn’t good. We actually want higher prices, although somewhere other than at ICA and Coop , perhaps.