can be broken down into prices of goods and services. i then choose to exclude oil, electricity and mortgage interest, which we already know has contributed to the low cpi inflation. goods prices ( chart 2 ) rose weakly in 2003, but since the end of the same year they have been falling. the rate of price increases for services has diminished in recent years and currently stands at roughly 2 per cent. so this does not appear at first sight to be a contributory factor to the low cpi inflation. it is important to remember, though, that productivity growth in the services sector is normally assumed to be somewhat lower than in the goods sector. given an inflation target of 2 per cent, therefore, services prices should, on average, be increasing slightly more than 2 per cent and goods prices by somewhat less. with the exception of short periods this has also been the case since 1995, as services prices have risen on average by 2. 5 per cent and goods prices by 0. 6 per cent. so, developments in services prices have also contributed, at least in the most recent period, to the low inflation. the chief remaining explanation for the low cpi inflation appears, however, to be found in the developments in goods prices. falling goods prices contributing to the low inflation when it comes to goods prices it is natural to distinguish between price developments for domestically produced goods and goods that are imported from other countries. prices of imported consumer goods have dropped since the middle of 2003. but inflation for domestically produced goods has also been low, with prices even falling during the second half of last year ( chart 3 ). consumer prices for both domestically produced and imported goods depend on many factors, e. g. the competition situation both abroad and in the home market and developments in costs and profit margins for both producers and distributors. to better understand why inflation is so low, the next step is to analyse the various stages from the production or importing of goods until the goods are put up for sale to consumers in shops. allow me to begin by looking at developments in the producer prices of domestic goods and in the prices of imported goods at customs, i. e. the prices paid by wholesalers in the distribution sector. i will then analyse how the path through the distribution sector can be thought to affect the final price of the goods that customers buy in shops, i. e. the price in the cpi. producer prices of domestically produced goods the rate of increase for producer prices of domestically produced consumer goods has been

to investigate this in greater detail is limited, however, by insufficient data. the part of the distribution sector that involves transportation saw a fall in unit labour costs in 2003 and 2004, while profit margins have recovered somewhat. in the statistics this sector includes a number of less relevant groups, such as restaurants, hotels and communication. in wholesale and retail trade, unit labour costs have increased at a lower and lower rate in recent years, and didn ’ t rise at all in 2004. meanwhile, profit margins rose slightly after having fallen from 23 to 15 per cent in the past ten years ( charts 8 and 9 ). in addition, competition in the retail sector has increased considerably in recent times due to the establishment of more and more low - price chains. among other things, that is being reflected in large - scale marketing campaigns in which one big chain store after another is advertising price cuts. food prices in the cpi have also dropped. nevertheless, profit margins appear to have increased slightly in 2004. that may be attributable to increased efficiency as a result of larger shop space, a higher proportion of own brands and possibly a more effective use of it. supply factors behind the low inflation this shows that supply factors are the main force driving the low inflation. the low domestic inflation is due in large measure to the high productivity growth in the economy. structural changes, too, such as the stiffening competition in the retail food sector, which has recently resulted in a drop in food prices, have played a part. the slack in resource use that has been evident in the economy for some time has of course also contributed to the low domestic inflation. we can also observe that the prices of imported goods have fallen in recent years. that is partly due to the krona ’ s appreciation and partly to low price increases for consumer goods in the international market. increased imports from low - cost countries have also led to greater downward pressure on prices of imported consumer goods than we previously expected. having looked back at these developments i now intend to look ahead and touch upon the assessment of the economic and inflation outlook that we presented in our latest inflation report in light of the information received since then. the current economic situation in the inflation report that was published in the middle of march we forecast that economic growth in both sweden and abroad would remain high in the coming years. for sweden we predicted a growth rate of roughly 3 per cent a year, which is higher than we deem sustainable in the long run. export demand was expected to