city centre were a further 10 - 20 per cent cheaper than those of the traditional chains in the city centre. other surveys also indicate large price differences. the stiffer competition is being facilitated by a greater ambition on the part of politicians to increase the number of shop sites for low - price chains. for example, in stockholm there are plans to raise the number of new sites considerably. • another trend we are seeing is that shops are becoming bigger and the share of sales accounted for by hypermarkets is rising. the total shop space is increasing at the same time as small food shops are being driven out of business. that entails a drop in costs and enables lower prices, partly in order to respond to the new chains ’ lower prices. • food chains are also concentrating more and more on private labels, which is clearly evident on their shelves in terms of the greater share of products that bear the shops ’ own brands as a complement to the different suppliers'brands. the purpose of private labels is to strengthen the chain ’ s brand name and to reduce costs through lower marketing expenses and fewer middlemen. in switzerland and the uk, where this trend has been going on the longest, 30 - 40 per cent of the shops ’ products are private labels. 4 sweden has long been one of the countries with the lowest share of private labels, around 10 per cent. according to a limited survey by the swedish competition authority of typical low - price goods, the prices of supplier brands have developed in line with the cpi while the prices of private labels have fallen sharply. increased competition and lower prices food prices in the cpi have dropped more or less since the start of last year. tougher competition increases the pressure on food retailers to cut prices in order to keep customers, even though other factors, such as service and quality, are important to consumers in their choice of shop. lower prices are made possible by reduced profit margins, lower taxes or lower costs resulting from, for instance, lower wages, higher productivity or a more limited product range. vat rates in the swedish non - durables sector have not changed during the current decade. however, wage costs have increased at a slower rate, which has led to lower unit labour costs in the wholesale and retail markets, despite a decline in productivity growth in recent years. moreover, companies'profit margins have continued to narrow. so it seems that the stiffer competition has contributed to lower food prices primarily through smaller profit margins and low wage increases. how much lower can swedish

sector also important for inflation the prices of consumer goods have fallen more than the aggregate producer prices of imported and domestic goods. that is because consumer goods prices, in a second step, are also affected by what happens in the distribution sector, i. e. the part of the business sector that distributes goods from producers to consumers. it is difficult to find comprehensive data for the distribution sector, but we have seen that unit labour costs in the sector that includes transportation fell in 2004. in the wholesale and retail trade, unit labour costs have increased at a slower and slower rate in recent years, not rising at all in 2004, and profit margins, moreover, have continued to shrink. 2 the retail trade is a significant part of the distribution sector and is half composed of non - durable goods, which largely comprise the food sector, while the other half consists of durables such as electronic goods and clothing. competition in the retail sector has increased considerably in recent years, to a great extent due to globalisation. for several years we have been able to buy home electronics at increasingly cheaper prices. likewise, particularly in the recent period, we have seen greater downward price pressure in the swedish non - durables sector, which has long been dominated by a few major players. we are seeing the establishment of more and more low - price chains, both foreign and swedish chains, as well as massive advertising campaigns in which one large operator after the other announces price cuts. this development can to a large degree be seen as an effect of tougher competition and of the price consciousness that globalisation has entailed. i now intend to mainly concentrate on what is happening in the food sector and to put this into a slightly broader perspective. developments in food prices as a component of the cpi food is an important component of the cpi, comprising just over 13 per cent. that means that falling food prices can have a significant impact on the cpi. in the past two years, developments in consumer food prices have been well below the inflation rate in terms of both the cpi and the measure we use to look at underlying inflation, und1x, as well as in terms of domestic inflation, und1x ( chart 3 ). food prices are greatly affected by weather conditions, e. g. the fluctuations in inflation around the turn of the year 2001 / 2002 were largely attributable to the effects on fruit and vegetable prices of the floods in europe. but temporary factors also play a part, such as mad cow disease,