In a new FOI report, researchers point out that the current system for price compensation, FPI, does not fully compensate the Swedish Armed Forces for price and wage increases. There is a risk that insufficient compensation from FPI will obstruct political decisions.

"To say that 'The Armed Forces has always cost SEK 40 billion' is a statement that needs qualifying," says Peter Nordlund, Defence Analyst at FOI.  Our analysis indicates that the purchasing power of the Armed Forces has declined in excess of what has been approved by the politicians. This is because compensation for increased costs is calculated using FPI, an index that underestimates actual cost escalation. An unchanged purchasing power during the last 10-year period would correspond to a defence allowance of approximately SEK 51 billion today, instead of the current allowance to the Swedish Armed Forces of SEK 39 billion. This corresponds to a decline in purchasing power of nearly 25 percent.

If cost escalation due to more efficient, but also more costly, technology is added to the analysis the decline in purchasing power is even higher, up to 33 percent.

The decline in purchasing power could put political decisions at risk, since it could lead to a gradual reduction in the level of ambition without specific political decisions concerning the level of ambition. As a result this requires that political decisions take economic conditions into consideration, so that an anticipated increase in efficiency does not instead result in a decreased level of ambition, for economic reasons.

In the study, researchers also point out that internationally, there are few examples of systematic indices that are able to accurately measure the Armed Forces' specific price and cost development over time.

"FPI also includes a time lag of two years and during the last ten-year period, the index development for a given year has had a low level of conformance with the development two years earlier," adds Defence Analyst, Mikael Wiklund, a co-author of the report. For example, it is possible for a year with high wage agreements to be compensated by a year with low wage agreements two years earlier. This complicates planning for as well as execution of activities and operations.