Inflation

Inflation is defined as an increase in the average prices during a period in time. A high inflation and an unstable monetary value can give adverse effects on a country's economy.

Price increases due to products and services are getting better is not harmful to the economy, but price increases caused by a increased money supply for consumption loans and speculation can bring harm to the economy.

A moderate and stable inflation creates good conditions for favorable economic development. A excessively low inflation increases the risk of deflation and it has historically proved to be bad for the economy with falling price levels. It is the central bank that has the responsibility to maintain price stability and the inflation goal in Sweden is 2 %.

A high inflation may lead to a high rate of unemployment in the long term, this is especially true if the country sells abroad and has a fixed exchange rate. High inflation erodes savers' capital and benefit borrowers who have invested their borrowed funds in real assets.

A high and unstable inflation makes it difficult for households and businesses to plan for the long term. High inflation means high interest charges. A high inflation makes it beneficial to consume now rather than later, and it can create bad spirals that provide an even higher inflation.