"The inflation could have been higher"


Olof Johansson Stenman, Professor in Economics, answers tre questions about the inflation and the interest rates in Sweden.

Porträtt på Olof Johansson Stenman
Olof Johansson Stenman, Professor in Economics, at the School of Business, Economics and Law at the University of Gothenburg.

Interest rates go up and inflation goes up. Why don't the interest rates affect the inflation?

– It is affected to a certain extent, that is, inflation would probably have been higher otherwise. At the same time, the numbers that are often reported in the media today give a somewhat misleading picture, when, for example, the price level in February is compared to the price level in February 2022 to measure the inflation. But even if the price level is much higher today than a year ago, this does not necessarily mean that inflation is high today, i.e., the price level in February 2023 does not have to be significantly higher than in January 2023.

The Federal Reserve recently raised the US key interest rate by 0.25 percentage points, despite the risk of a continued banking crisis. How do you think the Swedish Riksbank reasons before the new interest rate announcement at the end of April?

– Judging by the Governor of the Riksbank Erik Thedéen's statements, further increases are likely in Sweden as well, despite the fact that there are many who warn that this could strengthen the recession that we seem to be heading into.

Foton från livsmedelsbutik och klädaffär

Putting a lot of emphasis on the inflation target affects the possibilities of limiting unemployment in a recession

Why do the Swedish Riksbank has an inflation target of 2 percent annually?

– There is a large consensus that it is desirable to reduce the uncertainties in the economy by giving the Swedish Riksbank the responsibility for keeping the inflation around 2 percent. Putting a lot of emphasis on the inflation target, however, affects the possibilities of dampening economic fluctuations and limiting unemployment in a recession.

Text: Jessica Oscarsson