Inflation is a rise in the general level of prices in an economy. How quickly prices increase depends on a number of factors. During a period of high economic activity, when demand for goods and services is strong, prices normally rise quicker than during a period when activity is low. The rate of price increases can also change as a result of changed supply conditions, such as when vegetable prices vary according to weather conditions.
There are different measures of inflation. The most common and most well-known measure is the change in the consumer price index - the CPI. The CPI measures the price of a basket of goods and services. The prices of the different goods and services are weighted together on the basis of their representative proportions of consumption. Goods that are consumed on a large scale are given a greater weighting in the CPI and vice versa.
The Sveriges Riksbank Act states that the objective of monetary policy is to ”maintain price stability”. The Riksbank has defined this objective as to keep the annual increase in the CPI at 2 per cent. There is a tolerance range of plus/minus 1 percentage point around this target. The reason for having an inflation target is that low and stable inflation creates good conditions for favourable economic developments.
More information about what inflation is, how it is measured, how it was adopted and why the Riksbank has an inflation target can be found under the links on the left-hand side of the page. An in-depth description of the Riksbank’s analytical framework for monetary policy can be found in the clarification below from 1999.