Charts for Inflation report 1/2004

Summary

Chart 1 Projections for CPI-ATE 1) and the output gap 2). Per cent 1) CPI-ATE: CPI adjusted for tax changes and excl. energy products 2) The output gap is a measure of the difference between actual and trend output. See box in IR 1/03 Sources: Statistics Norway and Norges Bank CPI-ATE Output gap

Chart 2 CPI-ATE. Total and by supplier sector. 12- month rise. Per cent. Jan Dec 2006 Sources: Statistics Norway and Norges Bank Goods and services produced in Norway CPI-ATE Imported consumer goods

Chapter 1

1.1 The economic situation

1)GDP figures for 2003 are based on projections. Sources: Statistics Norway and Norges Bank Chart 1.1 The output gap. Percentage deviation from trend mainland GDP. Annual figures )

Chart 1.2 Real interest rate after tax. 1) Quarterly figures Q Q1 2). 1) 3-month money market rates deflated by the CPI excluding energy products up to 1995, Norges Bank`s estimates for the CPI adjusted for tax changes and excluding energy products from June 1995 to July 2000, then the CPI-ATE. The same deflator is used for 5-year government bond yields, but from 2001 Q2 the inflation target of 2.5 per cent is used 2) The figure for 2004 Q1 is preliminary Sources: Statistics Norway and Norges Bank 3-month rate 5-year rate

Source: Statistics Norway Chart 1.3 Employed persons according to LFS. In millions. Monthly figures. Jan 1998 – Dec Seasonally adjusted.

1) Hourly labour costs in manufacturing 2) Projections for wage growth in The projection for relative labour costs in common currency in 2004 is based on the assumption for the krone exchange rate in this report (TWI). Sources: TRCIS, Ministry of Finance and Norges Bank Chart 1.4 Relative labour costs¹ ) : Norway and trading partners. Deviation from average Per cent. Annual figures ) Local currency Common currency 2004

1.2 Consumer price inflation

Chart 1.5 CPI-ATE. Total 1) and by supplier sector 2). 12-month rise. Per cent. Jan Jan ) Norges Bank's estimates up to and including July 2000, thereafter figures published by Statistics Norway 2) Norges Bank's estimates Sources: Statistics Norway and Norges Bank Goods and services produced in Norway CPI-ATE Imported consumer goods

Chart 1.6 Prices for some imported consumer goods. 1) 12-month rise. Per cent. Jan Jan ) CPI adjusted for tax changes and excluding energy products. Percentage share of CPI-ATE in brackets Sources: Statistics Norway and Norges Bank Cars (9) Clothing and footwear (7) Audiovisual equipment (3)

1) CPI adjusted for tax changes and excluding energy products. Norges Bank's estimates Sources: Statistics Norway and Norges Bank Chart 1.7 CPI-ATE. Domestically produced goods 1). 12-month rise. Per cent. Jan 1999 – Jan 2004 Goods produced in Norway which are influenced to only a limited extent by global market prices Goods produced in Norway which are influenced by global market prices

Chart 1.8 Consumer prices. Total and adjusted for tax changes and excluding energy products. 12- month rise. Per cent. Jan Jan ) Norges Bank's estimates up to and including July 2000, thereafter figures published by Statistics Norway Sources: Statistics Norway and Norges Bank CPI CPI-ATE 1)

Chart 1.9 Electricity prices. Index. 1 Jan 1998=100. Daily figures. 1 Jan 2001 – 4 Mar Sources: Statistics Norway, Nordpool, the Norwegian Water Resources and Energy Directorate and Norges Bank Electricity in the CPI Spot price including taxes and grid rental

1.3 Financial markets

Chart Interest rate expectations. Actual developments and expected key rate 1) at 4 March Daily figures 1) Based on interest rates on FRA and futures contracts adjusted for the estimated difference between 3-month money market rates and the key rate. Sources: Bloomberg, Reuters and Norges Bank UK Euro area US Norway

Source: Bloomberg Chart 1.11 Yield on government bonds with 10 year residual maturity. Daily figures. 1 Jan Mar US Germany Norway

Chart 1.12 International equity indices. 1 Jan 2003 = 100 Daily figures. 1 Jan 2003 – 4 Mar Source: Bloomberg Norway OBX US S&P 500 Germany DAX Japan NIKKEI

Chart Change in 3-month money market rates and effective exchange rates 1). 23 Oct 2003 – 4 Mar ) A positive figure denotes a stronger exchange rate Sources: Bank of England and Bloomberg nok usd cad chf sek eur jpy gbp nzd aud Interest rate change. Basis points Exchange rate change. Per cent

Chart Individual exchange rate movements. 1) Effective rates. Index. 1 Jan 2002=100. Daily figures. Jan 2002 – 4 Mar ) A rising curve denotes a stronger exchange rate Source: Bank of England NZD EUR USD AUD NOK GBP

Chart Exchange rate for NOK against EUR, USD and SEK. 1) Daily figures. 1 Jan 2002 – 4 Mar ) A rising curve denotes a weaker krone exchange rate Source: Bloomberg NOK/USD (left-hand scale) NOK per 100 SEK (right-hand scale) NOK/EUR (left-hand scale)

1.4 Monetary Policy

Chart 1.16 Projections for CPI-ATE and the output gap 1) in IR 3/03. Per cent 1) The output gap is a measure of the difference between actual and trend output. See box in IR 1/03 Sources: Statistics Norway and Norges Bank CPI-ATE Output gap

Chart 1.17 CPI. Moving 10-year average (7 years back, current year and 2 years ahead). Per cent. CPI 1) Inflation target 1) The band around the CPI is the variation in the period, measured by +/- one standard deviation Sources: Statistics Norway and Norges Bank

Source: Norges Bank Chart 1.18 Strategy intervals for the sight deposit rate and actual developments. Nov Mar Interval in Strategy Document 1/03 Sight deposit rate Interval in Strategy Document 3/02 Interval in Strategy Document 2/03 Interval in Strategy Document 3/03

Chart 1.19 Interest rate expectations in the US Actual developments and expected key rate 1). Daily figures Key rate 23 Oct Dec Jan 04 1) Based on Fed Funds futures and Eurodollar futures adjusted for the estimated spread between the 3-month Libor and Fed Funds rates Sources: Bloomberg, Reuters and Norges Bank

Chart 1.20 Interest rate expectations in the euro area. Actual developments and expected key rate 1). Daily figures Key rate 23 Oct Dec Jan 04 1) Based on Euribor futures adjusted for the estimated spread between the 3-month Euribor and Refi rates Sources: Bloomberg, Reuters and Norges Bank

1) A rising curve denotes a stronger krone exchange rate Source: Norges Bank Chart 1.21 Import-weighted krone exchange rate 1), sight deposit rate and 3-month interest rate differential against trading partners. Daily figures. 1 Jan 2002 – 4 Mar 2004 I-44 (left-hand scale) Sight deposit rate (right-hand scale) Interest rate differential 3-month (right-hand scale)

Chapter 2

Chart 2.1 GDP growth in the US, Japan, the euro area and among Norway's trading partners combined. Quarterly growth. Per cent. 01 Q Q3. Seasonally adjusted Sources: EcoWin/US Department of Commerce, ESRI (JP) EURO-OP/Eurostat and Norges Bank US Euro area Japan Trading partners

Chart 2.2 Employment. 12-month growth. Per cent. Jan Jan Sources: EcoWin, Bureau of Labor Statistics (US), Federal Statistical Office (DE), Office of National Statistics (UK) and SCB (SE) Sweden US UK Germany

Chart 2.3 Structural budget balance. Per cent of GDP. Annual figures ). 1) Projections for period Source: OECD Euro area US Japan

Chart 2.4 Annual wage growth 1). Per cent – ). 1) Wage growth excluding public sector 2) Projections for period Source: OECD Euro area US Japan

Chart month rise in CPI. Per cent. Jan Feb 2004 Sources: EcoWin, EUR-OP/Eurostat, Federal Statistical Office (DE), Central Statistics Office (IRL) and Central Bureau of Statistics (NL) Ireland Germany Portugal Netherlands

Sources: London Metal Exchange and EcoWin Chart 2.6 Prices for aluminium, nickel and copper in USD. Index. 2001=100. Daily prices. 1 Jan 2001 – 4 Mar 2004 Copper Nickel Aluminium

Chart 2.7 GDP in China, Japan and Malaysia. Change on same quarter previous year. Per cent Q Q3 China Japan Sources: EcoWin, Statistics Japan, National Bureau of Statistics (CH) og Central Bank of Malaysia Malaysia

Sources: EcoWin and Norges Bank Chart 2.8 Oil price measured in USD and EUR per barrel. 14-day moving average. Daily prices. 18 Jan 2002 – 4 Mar 2004 Dollar per barrel Euro per barrel

1) Brent Blend Sources: International Petroleum Exchange and Norges Bank Chart 2.9 Oil price 1) in USD per barrel. Daily figures. 1 Jan 2001 – 4 Mar Futures prices from 4 Mar Oil price Futures prices 4 Mar 04

Chart 2.10 Consumer price inflation in the US, the euro area, Japan and among Norway's trading partners. Annual rise ) 1) Projections for period Sources: OECD, EU Commission and Norges Bank Trading partners Euro area US Japan

Chapter 3

Chart 3.1 Assumption for the money market rate. Forward rate 1) 2). Per cent 1) 3-month money market rates up to February month forward rates are estimated using four money market rates and four government bond yields with different maturities as observed on 4 March. 2) The money market rate is normally about ¼ percentage point higher than the sight deposit rate Source: Norges Bank Forward rate 4 March 3-month money market rate

Chart 3.2 Assumption for the krone exchange rate (I- 44). Forward rates. Index 1) 1) A rising curve denotes a weaker krone exchange rate Source: Norges Bank Forward rate 4 March Import-weighted exchange rate, I-44

Chart 3.3 Sight deposit rate, 5-year swap rate and implied one-year swap rate 4 years ahead 1). Weekly figures. 7 Jan Mar ) Implied 1-year rate 4 years ahead is estimated using 4- and 5-year swap rates. Since 2002, the 5-year swap rate has been ½ percentage point higher than government bond yields on average. Sources: Norges Bank and EcoWin Sight deposit rate 5-year rate Implied 1-year rate 4 years ahead

Chart 3.4 Real growth in household disposable income and consumption. Annual figures. Per cent Sources: Statistics Norway and Norges Bank Real income growth Real growth in consumption

Chart 3.5 Consumer confidence indicator. 1) 1999 Q Q1. Unadjusted figures. Total Personal financial situation Country's economic situation 1) Provides an indication of the share with a positive assessment of the current situation and outlook for the future less the share with a negative assessment. Source: TNS Gallup

Chart 3.6 Vacant office premises in Oslo, Asker and Bærum. Share of total real estate stock ) 1) As at February Source: Eiendomsspar AS

Chart 3.7 Productivity growth and real growth in value added in commercial services. 2-year moving average. Annual figures. Per cent Sources: Statistics Norway and Norges Bank Productivity (right-h. scale) Output (left-hand scale) -8,7

Chart 3.8 Gross investment as a share of value added. Annual figures Sources: Statistics Norway and Norges Bank Services and distributive trades Average last 10 years Manufacturing and construction

1) Hourly labour costs in manufacturing 2) Projections for wage growth in The projection for relative labour costs in common currency in 2004 is based on the assumption for the krone exchange rate in this report (TWI). Sources: TRCIS, Ministry of Finance and Norges Bank Chart 3.9 Relative labour costs¹ ) : Norway and trading partners. Deviation from average Per cent. Annual figures ) Local currency Common currency 2004

Chart 3.10 Growth in local government income and activity and nominal growth in mainland GDP. Annual figures. Per cent Sources: The Technical Reporting Committee on Local Government Finance and Statistics Norway Income growth Activity growth Growth in mainland GDP

Chart 3.11 Local government surplus before loan transactions, net debt and net operating profit/ loss. Percentage of operating income Surplus 1) (right-hand scale) Net debt 2) (left-hand scale) Net operating profit/loss (right- hand scale) 1) Surplus before loan transactions 2) Excluding claims on local government enterprises Sources: The Technical Reporting Committee on Local Government Finance

Chart 3.12 Employment and labour force. In millions. Monthly figures. Jan Dec Seasonally adjusted. Source: Statistics Norway Employment Labour force

Chart 3.13 Number of new vacancies advertised, per business day. Monthly figures. Jan Feb Seasonally adjusted. Source: Directorate of Labour

Chart 3.14 Change in employment on previous year. Per cent. Unemployment 1) as a percentage of the labour force. Annual figures ) LFS unemployment Sources: Statistics Norway and Norges Bank LFS unemployment (left-hand scale) Numbers employed (right-hand scale)

Chapter 4

Chart 4.1 Assumption for the money market rate. Forward rate 1) 2). Per cent. 1) 3-month money market rates up to and including February month forward rates are estimated using four money market rates and four government bond yields with different maturities as observed on 4 March. 2) The money market rate is normally about ¼ percentage point higher than the sight deposit rate. Source: Norges Bank Forward rate 4 March 3-month money market rate

Chart 4.2 Assumption for the krone exchange rate (I- 44). Forward rates. Index 1). 1) A rising curve denotes a weaker krone exchange rate Source: Norges Bank Forward rate 4 March Import-weighted exchange rate, I-44

Chart 4.3 Projections for CPI-ATE and the output gap 1). Per cent. 1) The output gap is a measure of the difference between actual and trend output. See box in IR 1/03 Sources: Statistics Norway and Norges Bank CPI-ATE Output gap

Chart 4.4 Projected external price movements for some imported consumer goods. Measured in trading partners' currencies. Quarterly figures. Index Q1= Q1 – 2003 Q3 Sources: EcoWin and Norges Bank Clothing Footwear Audiovisual equipment

Chart 4.5 Consumer goods imports from central Europe 1) and China as a share of total consumer goods imports. Per cent. Annual figures ). China Central Europe 1) Central Europe: Slovenia, Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Slovakia, Poland and Hungary 2) Figures for 2003 from January to November Source: Statistics Norway

Chart 4.6 Consumer prices for audiovisual equipment in Norway and other countries. 12-month rise. Per cent. Jan Jan Sources: EcoWin and Statistics Norway Norway Sweden Germany

Chart 4.7 Indicator of external price impulses to consumer goods measured in foreign currency. Historical developments and projections. Annual figures Source: Norges Bank

Chart 4.8 Prices for consumer goods imports in the CPI and in External Trade Statistics projected two quarters ahead, and I-44 projected three quarters ahead. 4-quarter rise. Per cent. 98 Q Q3 1) Our estimates: Clothing and accessories, footwear, furniture, food and beverages 2) Excluding audiovisual equipment and cars Sources: Statistics Norway and Norges Bank I-44 Imported consumer goods in External Trade Statistics 1) Consumer goods imports in CPI 2)

Chart 4.9 Prices for air travel. Adjusted for taxes. 12- month rise. Jan Jan Sources: Statistics Norway and Norges Bank

Chart 4.10 Annual wage growth 1) and unemployment rate 2). Per cent. Annual figures ) Average for all groups. Including cost of additional vacation days 2) LFS Sources: Technical Reporting Committee on Income Settlements, Statistics Norway and Norges Bank Unemployment rate Annual wage growth

Registered unemployed and persons on labour market programmes as a percentage of the labour force Annual wage growth (incl. cost of additional vacation days) Chart 4.11 Annual wage growth and unemployment. 2-year average Sources: Technical Reporting Committee on Income Settlements, Directorate of Labour and Norges Bank

Chart 4.12 Expected consumer price inflation in 5 years. Per cent. Quarterly figures. 02 Q Q1 Experts Employer organisations Source: TNS Gallup Employee organisations

Chart 4.13 Expected consumer price inflation in 2 years. Per cent. Quarterly figures. 02 Q Q1 Experts Employer organisations Source: TNS Gallup Employee organisations

Chart 4.14 CPI-ATE. Total and by supplier sector. Historical developments and projections. 12-month rise. Per cent. Jan Dec 2006 Sources: Statistics Norway and Norges Bank Goods and services produced in Norway CPI-ATE Imported consumer goods

Chart 4.15 CPI-ATE. Historical developments and projections 1). Seasonally adjusted 3-month moving average, annualised, and 12-month rise. Oct Nov 2004 Projections 1) The columns show 3-month moving average. The curves show the 12-month rise. Sources: Statistics Norway and Norges Bank Historical

Chart 4.16 CPI and CPI-ATE. Historical developments and projections. 12-month rise. Per cent. Jan Dec 2006 CPI CPI-ATE Sources: Statistics Norway and Norges Bank

Chart 4.17 Projections and uncertainty for CPI-ATE. 12-month rise. Per cent. Jan Dec %50%70%90% The bands in the fan indicate different probabilities for developments in the CPI-ATE. Sources: Statistics Norway and Norges Bank

Charts for boxes and appendices

Low external price impulses to the Norwegian economy

Chart 1 Projected external price developments for some imported consumer goods. Measured in trading partners' currencies. Quarterly figures. Index. 91 Q1= Q Q3 Source: Norges Bank Furniture and household appliances Audiovisual equipment Footwear Cars Other goods Clothing

Chart 2 Foreign producer prices and a new indicator of external price impulses to consumer goods Measured in trading partners' currencies. Quarterly figures. Index Q1= Q Q3 Source: Norges Bank New indicator of external price impulses to consumer goods Producer prices 25 traditional trading partners

Pass-through from the krone exchange rate to prices for imported consumer goods

Source: Norges Bank Earlier estimate New estimate Chart 1 Estimated effects on price inflation for imported consumer goods in the CPI-ATE of a 10 per cent sustained strengthening of the import- weighted krone exchange rate. Percentage points Year 2 Year 3 Year 1 Year 4

Chart 2 Historical movements in prices for imported consumer goods and estimated effects of external prices, exchange rate movements and the output gap. Contribution in percentage points to 4-quarter rise Q1 – 2003 Q4 Sources: Statistics Norway and Norges Bank Contribution from output gap Contribution from exchange rate Contribution from external prices Movements in prices for imported consumer goods

Effect of the fall in interest rates on household income

Chart 1 Interest rates on deposits and loans to households and non-profit institutions in domestic financial institutions. Estimated monthly series. Per cent. Jan Dec 2003 Key rate (sight deposit rate) Loans in banks Bank deposits Source: Norges Bank Loans in government lending institutions Loans in mortgage companies and life insurance

The krone exchange rate and exchange rate expectations

Chart 1 Effective exchange rates for Norway, Canada and Sweden 1). Index. Week = 100. Week Week Canada Sweden Norway 1) A rising curve denotes a stronger exchange rate Sources: Bank of England and EcoWin

Chart 2 Effective exchange rates for Norway, Australia and New Zealand 1). Index. Week = 100. Week Week Australia New Zealand Norway 1) A rising curve denotes a stronger exchange rate Sources: Bank of England and EcoWin

Chart 3 Real exchange rates. Deviation from average Per cent. Annual figures ) Relative labour costs Relative prices 1) Based on projections for wage and price inflation for The krone exchange rate in 2004 is based on the assumptions in IR 1/04 (TWI) Sources: TRCIS, the Ministry of Finance, Statistics Norway and Norges Bank 2004

Chart 4 TWI and 5-year forward rate 1). Daily figures. 1 Jan 93 – 4 Mar 04. 1) A rising curve denotes a weaker krone exchange rate Source: Norges Bank Introduction of inflation targeting TWI TWI forward rate

Chart 5 TWI and expected TWI one year ahead 1). Monthly figures. June Feb 2004 Expected TWI TWI 1) A rising curve denotes a weaker krone exchange rate. Expected TWI is based on Consensus Forecasts. Sources: Consensus Forecasts and Norges Bank

Evaluation of Norges Bank’s projections for 2003

Chart 1 CPI-ATE projections made at different times. 4-quarter rise Sources: Statistics Norway and Norges Bank 3/01 1/03 2/02 1/02 3/02 2/03 3/03 Actual

Chart 2 CPI-ATE. Projections and actual developments. Total and by supplier sector. 4-quarter rise. Per cent Sources: Statistics Norway and Norges Bank Goods and services produced in Norway CPI-ATE Imported consumer goods Actual Projection IR 3/01

Annex 3: Strategy document

Chart 1a Real interest rates after tax 1) Q Q3 5-year rate 3-month rate 1) 3-month rate deflated by CPI excluding energy products up to Norges Bank's estimates for the CPI adjusted for tax changes and excluding energy products from 1995 to July 2000, then CPI-ATE. The same deflator is used for 5-year government bond yields, but from 2001 Q2 the inflation target of 2.5 per cent is used. Sources: Statistics Norway and Norges Bank

Chart 1b Import-weighted exchange rate (I-44) and trade-weighted exchange rate index 1). Monthly figures. Jan Oct ) A rising curve denotes a weaker krone exchange rate Source: Norges Bank I-44 TWI

Chart 1c Real exchange rate. Deviation from average Annual figures Per cent 1) Average exchange rate at 23 Oct 2003 Sources: TRCIS, Ministry of Finance, Statistics Norway and Norges Bank Relative labour costs Relative prices October 1)

Chart 1d CPI-ATE. Total and distributed by imported and domestically produced goods and services 1). 12-month rise. Per cent 1) Norges Bank's estimates Sources: Statistics Norway and Norges Bank Goods and services produced in Norway Imported consumer goods CPI-ATE

Chart 2a Assumption for money market rates. Quarterly figures Q Q4 Source: Norges Bank Forward rate 23 October IR 2/03

Chart 2b Assumption for the krone exchange rate (I- 44). Quarterly figures Q Q4 Source: Norges Bank Forward rate 23 October IR 2/03

Chart 3 Projected CPI-ATE and output gap with forward interest rate and forward exchange rate. Per cent CPI-ATE (monthly figures) Output gap (annual figures) Sources: Statistics Norway and Norges Bank

Chart 4 Taylor rate and expected key rates 1). Quarterly figures Q Q4 1) The expected key rate is estimated on the basis of 3-month FRA rates in Norway and among trading partners on 23 October 03. Source: Norges Bank Taylor rate Expected key rate in Norway Expected key rate among trading partners

Appendices 4 and 5

Source: Norges Bank Sight deposit rate 3-month money market rate 3-month money-market rate and sight deposit rate. Monthly figures. Jan Feb 2004

1) Theoretical ECU rate up to December 1998 Source: Norges Bank Euro area 1) US Japan 3-month rates in the US, the euro area and Japan. Per cent. Monthly figures. Jan Feb 2004

Source: Norges Bank Import-weighted exchange rate, I-44 (1995=100 Trade-weighted exchange rate index, TWI (1990=100) Trade-weighted exchange rate index and import-weighted exchange rate I-44. Monthly figures. Jan Feb 2004

Source: Norges Bank Credit to households C2 The credit indicator (C2), credit to households and total credit to the non-financial private sector and municipalities, mainland Norway (C3). 12-month rise. Per cent. Monthly figures. Jan Jan 2004 C3 mainland Norway

Assumption for money market rate. Forward rate. Per cent Source: Norges Bank Forward rate 4 March 3-month money market rate

Assumptions for the krone exchange rate (I-44). Forward rates. Index Source: Norges Bank Forward rate 4 March Import-weighted exchange rate, I-44