Paul Krugman has a post talking about how tighter monetary policy caused Sweden to go into deflation. Here is the chart showing their deflation.
OK… we can see the deflation there far to the right. Paul Krugman talked about Sweden raising the interest rate to battle bubbles. Let’s look at the interest rate in Sweden.
Yes, they certainly raised the interest rate. But didn’t Norway also raise their interest rate? Norway also has its own currency.
Norway actually raised their interest rate higher and longer than Sweden. So I guess we would see deflation in Norway, right?
Hmmmm, Norway has an inflation rate of 2.6%. OK, Mr. Krugman, what am I missing here? Your logic is not solid. Where is the answer?… I compare consumer spending in these two countries.
Swedish consumer spending rose 13% since 2009. What about Norway?
In Norway, consumer spending rose 17% since 2009. That would help inflation if people were spending more. Maybe inflation is stronger in Norway over Sweden due to more purchasing power of people, instead of what the central bank interest rate is.