Sweden: Selected Issues

International Monetary Fund

No 2024/071, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper analyzes inflation developments, drivers, and risks in Sweden. Inflation in Sweden started rising sharply from June 2022. Using dynamic simulations of an estimated Sweden-specific Phillips curve (PC), the team assess the role of external factors in driving recent inflation. Several factors that are poorly captured in the PC analysis, may account for the rise in unexplained inflation. Illustrative risk scenarios confirm a wide range of possible inflation paths on either direction. Renewed commodity price shocks and smaller-than-estimated slack could delay the return of inflation to target. Increasing inflation expectations, including because of renewed exchange rate pressures, would also feed into higher inflation. Core inflation could be sticker if the price setting becomes de-anchored or more backward looking. Growth in the gross domestic product deflator (as one measure of inflation) can be decomposed into three components—profits, labor costs, and taxes—to assess inflationary pressures in the economy.

Keywords: Citi Sweden inflation surprise Index; EA inflation driver; inflation expectation; monetary policy transmission; inflation development; Inflation; Unconventional monetary policies; Currencies; Consumer price indexes; Nominal effective exchange rate; Global (search for similar items in EconPapers)
Pages: 32
Date: 2024-03-11
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