Inflation Report 1/2005. Main features of the economic outlook.

Inflation Report 1/2005

Main features of the economic outlook

Chart 1 Projections and uncertainty for CPI-ATE.1) 4-quarter change. Per cent. 01 Q1 – 08 Q4

0

1

2

3

4

5

2001 2002 2003 2004 2005 2006 2007 20080

1

2

3

4

530% 50% 70% 90%

1) The bands in the fan indicate different probabilities for developments in the CPI-ATE. Probabilities are based on the difference between projected and actual developments in underlying inflation in the period 1997 – 2004

Sources: Statistics Norway and Norges Bank

0

1

2

3

4

5

6

2001 2002 2003 2004 2005 2006 2007 20080

1

2

3

4

5

630% 50% 70% 90%

Chart 2 Projections and uncertainty for growth in mainland GDP.1) Annual change. Per cent. 2001 – 2008

1) The bands in the fan indicate different probabilities for growth in mainland GDP. Probabilities are based on the difference between projected and actual developments in mainland GDP in the period 1994 -2003


Section 1

Chart 1.1 Interest rate expectations. Actual developments and expected key rate1) at 10 March 05. Per cent. 2 Jan 03 – 1 Nov 06

0

1

2

3

4

5

6

2003 2004 2005 20060

1

2

3

4

5

6

US

Euro area

Norway

UK

1) FRAs and futures contracts adjusted for the estimated difference between 3-month money market rates and the key rate

Sources: Reuters and Norges Bank

0

2

4

6

8

10

2002 2004 2006 20080

2

4

6

8

10

Chart 1.2 Forward interest rates1) 2). Monthly figures. Per cent. Jan 02 – Dec 08

1) The money market rate is normally about ¼ percentage point higher than the sight deposit rate2) 3-month money market rates to end-February 2005

Source: Norges Bank

Forward rate 10 March 05

3-month money market rate

Forward rate 28 October 04(IR 3/04)

0

1

2

3

4

5

6

2004 2005 2006 2007 20080

1

2

3

4

5

6

1) Estimated as a weighted average of trading partners' forward rates

Source: Norges Bank

Norway

Trading partners1)

Chart 1.3 Forward interest rates. Monthly figures. Per cent. Oct 04 – Dec 08

10 March 0528 October 04

1)A rising curve denotes a weaker krone exchange rate

Source: Norges Bank

Chart 1.4 Nominal effective exchange rate1). Import-weighted exchange rate index (I-44, 1995=100) and the trade-weighted exchange rate index (TWI, 1990=100). Monthly figures. Jan 90 – Feb 05

80

90

100

110

120

90 92 94 96 98 00 02 0480

90

100

110

120

I-44

TWI

-15

-10

-5

0

5

10

15

85 87 89 91 93 95 97 99 01 03 05-15

-10

-5

0

5

10

15

Chart 1.5 Real exchange rates (relative consumer prices and labour costs in common currency). Annual figures. Per cent. Deviation from average 1970 – 20041)

1) Average nominal exchange rate (TWI) for 2005 based on the average so far this year (through 10 March)2) Projections for wage growth in 2005 from IR 1/053) Projections for consumer price inflation in 2005 from IR 1/05

Sources: Statistics Norway, TRCIS, the Ministry of Finance and Norges Bank

Relative prices3)

Relative labour costs in manufacturing2)

Chart 1.6 Value added, mainland Norway. Index. 2001 = 100. Seasonally adjusted. Quarterly figures. 99 Q1 – 04 Q4

88

94

100

106

112

1999 2001 2003 200588

94

100

106

112

Goods

Services1)

Mainland Norway

1) Excluding public sector

Source: Statistics Norway

Chart 1.7 Output, employment and productivity. Average quarterly growth (annualised) up to 04 Q4. Per cent

0

1

2

3

4

5

MainlandGDP

Employedpersons

Person-hours

worked

Productivity0

1

2

3

4

5Last 7 quarters

Last 4 quarters


4

6

8

10

12

14

4

6

8

10

12

14

1980 1984 1988 1992 1996 2000 2004

Chart 1.8 Number of sick pay days paid by the National Insurance per employee.1) Per cent. Annual figures. 1980 – 2004

1) Since 2000 the sick pay scheme has also applied to all central government employees. This results in a break in the series between 1999 and 2000

Source: National Insurance Administration

Chart 1.9 Person-days lost due to sickness absence, both self-certified and doctor-certified, for employees aged 16-69. Per cent of contractual person-days. Quarterly figures. 00 Q2 – 04 Q3

4

5

6

7

8

9

2000 2001 2002 2003 20044

5

6

7

8

9


Chart 1.10 Demand. Average quarterly growth (annualised) through 04 Q4. Per cent

0

4

8

12

16

20

24

Priv.cons.

Publ.cons.

Mainl.invest.

Petr.invest.

Exp. trad.goods

0

4

8

12

16

20

24

Last 7 quarters

Last 4 quarters


Chart 1.11 Housing investment and housing starts. Seasonally adjusted. 00 Q1 – 04 Q4

12,000

13,000

14,000

15,000

16,000

2000 2001 2002 2003 2004 2005500

600

700

800

900

1000

Housing investment, in millions of 2002-NOK (left-hand scale)

Housing starts, in 1000 m2 (right-hand scale)


Chart 1.12 Growth in credit to households and enterprises.1) 12-month growth. Per cent. Jan 97 – Jan 05

-3

0

3

6

9

12

15

18

1997 1999 2001 2003 2005-3

0

3

6

9

12

15

18

Credit to non-financial enterprises

1) From domestic sources (C2)

Source: Norges Bank

Credit to households

Chart 1.13 Mainland fixed investment. Average quarterly growth (annualised) through 04 Q4. Per cent

0

4

8

12

16

20

24

28

Goodsproduction

Services Housing0

4

8

12

16

20

24

28Last 7 quarters

Last 4 quarters

1) Excluding public sector


1)

Chart 1.14 Vacant office premises in Oslo, Asker and Bærum. Per cent of total property stock. Annual figures. 1991 – 20051)

0

2

4

6

8

10

12

1991 1994 1997 2000 20030

2

4

6

8

10

12

1) As at February

Source: Eiendomsspar AS

Chart 1.15 CPI-ATE1). Total and by supplier sector.2) 12-month change. Per cent. Jan 02 – Feb 05

-6

-4

-2

0

2

4

6

2002 2003 2004 2005-6

-4

-2

0

2

4

6

1) CPI-ATE: CPI adjusted for tax changes and excluding energy products2) Norges Bank's estimates


Goods and services produced in Norway

CPI-ATE

Imported consumer goods ActualIR 3/04

Chart 1.16 Contribution to the decline in the CPI-ATE inflation from Dec 01. Percentage points. Jan 02 – Feb 05

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

2002 2003 2004 2005

Imported consumer goods

House rents

Remainder1)

Other services

1) Agricultural products, fish products, consumer goods produced in Norway, services with wages as dominant factor


Chart 1.17 CPI-ATE. Seasonally adjusted monthly change. 3-month moving average, annualised. Per cent. Jan 04 – Jun 051)

-1

0

1

2

3

Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05-1

0

1

2

3

Projections

1) Projections from Mar 05 – Jun 05


Historical

Chart 1.18 The output gap1) and CPI-ATE. Quarterly figures. Per cent. 99 Q1 – 05 Q32)

-2

0

2

4

1999 2001 2003 2005-2

0

2

4


CPI-ATE

Output gap

1) Quarterly figures for the output gap have been derived from annual figures.

2) Projections for 2005

Section 2

Chart 2.1 Chinese imports of crude oil and oil prices. Monthly imports in millions of tons. Oil price, USD/barrel. 6-month moving average. Apr 94 – Dec 04

0

10

20

30

40

50

1994 1996 1998 2000 2002 20040

3

6

9

12

15

Oil price (left-hand scale)

Chinese imports of crude oil

(right-hand scale)

Sources: EcoWin / National Bureau of Statistics and Norges Bank

Chart 2.2 Chinese imports of aluminium and aluminium prices. Monthly imports in thousands of tons. Aluminium price in USD/ton. 6-month moving average. Apr 94 – Dec 04

1000

1500

2000

2500

3000

1994 1996 1998 2000 2002 20040

40

80

120

160

Sources: EcoWin / National Bureau of Statistics and Norges Bank

Aluminium spot price (left-hand scale)

Chinese imports of aluminium (right-hand scale)

Chart 2.3 Oil price1) in USD per barrel. Forward prices from 28 Oct 04 and 10 Mar 05. Daily figures. 2 Jan 02 – 31 Dec 07

15

25

35

45

55

2002 2004 2006 200815

25

35

45

55

28 October 04 IR 3-04

10 March 05

1) Brent Blend

Sources: Telerate, IPE and Norges Bank

Chart 2.4 Crude oil stocks in the US. In million barrels. Weekly figures. Jan 03 – Mar 05

250

275

300

325

Jan Mar May Jul Sep Nov250

275

300

325

2004

2003

Source: Energy Information Agency

2005

Chart 2.5 Oil price futures. USD per barrel of light crude. Monthly figures. Jan 01 – Mar 051)

15

20

25

30

35

40

45

50

55

2001 2002 2003 2004 200515

20

25

30

35

40

45

50

55

Delivery in 6-7 years

Delivery next month

1) The figure for March is the average up to and including the 10th

Sources: EcoWin/NYMEX and Norges Bank

Chart 2.6 Producer prices among trading partners. 4-quarter change. Per cent. 98 Q1 – 04 Q4

-3

0

3

6

1998 2000 2002 2004-3

0

3

6

Sources: National statistical offices and Norges Bank

Chart 2.7 Indicator of external price impulses to imported consumer goods measured in foreign currency. Annual figures. Per cent.1995 – 20081)

1) Projections for 2005 -2008

Source: Norges Bank

-3

-2

-1

0

1

2

3

1995 1997 1999 2001 2003 2005 2007-3

-2

-1

0

1

2

3

0

20

40

60

80

0

20

40

60

80

20022003

2005

2004

Estimate made previous year

Estimate made same year

Chart 2.8 Investment intentions survey. Oil and gas recovery incl. pipeline transport. Estimated and actual investments. In billions of NOK


Final figures

May Aug Nov Feb May Aug Nov Feb

Chart 2.9 Underlying spending growth in the government budget and nominal growth in mainland GDP. Growth on previous year. Per cent. 1985 – 2005

0

3

6

9

12

15

0

3

6

9

12

15

1985 1988 1991 1994 1997 2000 2003

Sources: Ministry of Finance (NB 2005) and Statistics Norway

Underlying spending growth

Nominal growth in mainland GDP

Chart 2.10 Unit labour costs (ULC). Wholesale and retail trade and mainland Norway excl. public sector. Index. 1990=100. Annual figures. 1970 – 2004

0

50

100

150

200

0

50

100

150

200

1970 1975 1980 1985 1990 1995 2000


Mainland Norwayexcl. public sector

Retail trade

Section 3

Chart 3.1 The output gap1) and CPI-ATE. Quarterly figures. Per cent. 99 Q1 – 05 Q32)

-2

0

2

4

1999 2000 2001 2002 2003 2004 2005-2

0

2

4


CPI-ATE

Output gap

1) Quarterly figures for the output gap have been derived from annual figures. 2) Projections for 2005

Chart 3.2 Real interest rate after tax.1) Quarterly figures. 85 Q1 – 04 Q4

-3

0

3

6

9

1985 1989 1993 1997 2001 2005-3

0

3

6

9

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, thereafter the CPI-ATE. The same deflator is used for 5-year rates, but from 2001 Q2 the inflation target of 2½ per cent is used


5-year rate

3-month rate

Source: Norges Bank

Chart 3.3 The interest rate in the baseline scenario and forward interest rates in Norway. Quarterly figures. 04 Q1 – 08 Q4

0

1

2

3

4

5

6

7

2004 2005 2006 2007 20080

1

2

3

4

5

6

7

Baseline scenarioForward rates 10 March

0

1

2

3

4

5

6

7

2004 2005 2006 2007 200890

92

94

96

98

100

Interest rate (left-hand scale)

Import-weighted exchange rate (I-44) (right-hand scale)

Chart 3.4a 3-month money-market rate and import-weighted exchange rate (I-44)1) 2) in the baseline scenario. Quarterly figures. 04 Q1 – 08 Q4

1) A rising curve denotes a weaker krone exchange rate2) The figures for 2005 Q1 are based on the average through 10 March

Source: Norges Bank

Chart 3.4b Projections for the CPI-ATE and output gap in the baseline scenario. Quarterly figures. Per cent. 04 Q1 – 08 Q4


CPI-ATE

Output gap

-2

-1

0

1

2

3

2004 2005 2006 2007 2008-2

-1

0

1

2

3

0

1

2

3

4

5

6

7

2004 2005 2006 2007 20080

1

2

3

4

5

6

7

Source: Norges Bank

Chart 3.5a 3-month money market rate in the baseline scenario and in alternative scenarios with high and low interest rates. Quarterly figures. 04 Q1 – 08 Q4

Baseline scenario

Low interest rate

High interest rate

-2

-1

0

1

2

3

2004 2005 2006 2007 2008-2

-1

0

1

2

3

Chart 3.5b Projections for the CPI-ATE and the output gap in the baseline scenario and in alternative scenarios with high and low interest rates. Quarterly figures. Per cent. 04 Q1 – 08 Q4


CPI-ATE (solid lines)

Output gap (broken lines)

Baseline scenarioHigh interest rateLow interest rate

0

2

4

6

8

10

12

14

2002 2003 2004 2005 2006 2007 20080

2

4

6

8

10

12

14

Chart 3.6 Credit to households (C2) in the baseline scenario and in alternative scenarios with high and low interest rates. Annual percentage change in stock. 2002 – 2008

Source: Norges Bank

Baseline scenarioHigh interest rateLow interest rate

0

1

2

3

4

5

6

7

2004 2005 2006 2007 200890

92

94

96

98

100

Interest rate in baseline scenario (left-hand scale)

Import-weighted exchange rate (I-44) in scenario with lower inflation (right-hand scale)

Chart 3.7a 3-month money-market rate and import-weighted exchange rate (I-44)1) 2) in scenario with lower inflation. Quarterly figures. 04 Q1 – 08 Q4

Interest rate in scenario with lower inflation

(left-hand scale)


Source: Norges Bank

-2

-1

0

1

2

3

2004 2005 2006 2007 2008-2

-1

0

1

2

3

Chart 3.7b Projections for the CPI-ATE and output gap in the scenario with lower inflation. Quarterly figures. Per cent. 04 Q1 – 08 Q4


CPI-ATE

Output gap

0

1

2

3

4

5

6

7

2004 2005 2006 2007 200890

92

94

96

98

100

I-44 inscenario with

stronger exchange rate (right-hand scale)

Chart 3.8a 3-month money-market rate and import-weighted exchange rate (I-44)1) 2) in scenario with stronger exchange rate. Quarterly figures. 04 Q1 – 08 Q4


Interest rate in scenario with stronger exchange rate (left-hand scale)


Source: Norges Bank

-2

-1

0

1

2

3

2004 2005 2006 2007 2008-2

-1

0

1

2

3

Chart 3.8b Projections for the CPI-ATE and output gap in the scenario with a stronger exchange rate. Quarterly figures. Per cent. 04 Q1 – 08 Q4


CPI-ATE

Output gap

0

1

2

3

4

5

6

7

2004 2005 2006 2007 200890

92

94

96

98

100

Import-weighted exchange rate (I-44) in scenario with stronger output growth (right-hand scale)

Chart 3.9a 3-month money-market rate and import-weighted exchange rate (I-44)1) 2) in scenario with stronger output growth. Quarterly figures. Per cent. 04 Q1 – 08 Q4


Interest rate in scenario with stronger output growth (left-hand scale)

1) A rising curve denotes a weaker krone exchange rate.2) The figures for 2005 Q1 are based on the average up to 10 March.

Source: Norges Bank

Chart 3.9b Projections for the CPI-ATE and output gap in the scenario with stronger output growth. Quarterly figures. Per cent. 04 Q1 – 08 Q4


CPI-ATE

Output gap

-2

-1

0

1

2

3

2004 2005 2006 2007 2008-2

-1

0

1

2

3

Monetary policy rulesThe Taylor rule:Interest rate = inflation target + equilibrium real interest rate + 1.5 x (inflation - inflation target) + 0.5 output gapThe rule was presented in 1993 by Professor John B. Taylor at Stanford University (see Taylor, J.B. (1993): "Discretion versus policy rules in practice", Carnegie-Rochester Conference Series on Public Policy 39, pp. 195-214. In Chart 3.10 we have used the CPI-ATE as a measure of inflation.

The Orphanides rule:The Taylor Rule is vulnerable to error in the estimation of the output gap. Athanasios Orphanides, who is a researcher and adviser in the Federal Reserve, therefore proposes the alternative of replacing the output gap with the difference between actual growth and trend growth in the economy (the growth gap). See Orphanides A., R. D. Porter, D. Reifschneider, R. Tetlow and F. Finan (2000) ”Errors in the measurement of the output gap and the design of monetary policy”, Journal of Economics and Business, vol. 52, pp.117-141.

Rule with interest rates abroad: Interest rate = 0.5 x Taylor rate + 0.5 x Money market rate among Norway's trading partners.

0

2

4

6

8

1999 2000 2001 2002 2003 2004 20050

2

4

6

8Taylor rate (blue line)

Sight deposit rate (red line)

Chart 3.10 Sight deposit rate, Taylor rule, Orphanides rule and rule with interest rates abroad. Inflation as in the baseline scenario. Quarterly figures. 99 Q1 – 05 Q2

Orphanides’ rule1)

(yellow line)

Rule with interest rate abroad (green line)

1) Norges Bank's projection for growth in mainland GDP one to two quarters earlier forms the basis for the estimates

Source: Norges Bank

0

2

4

6

8

1999 2000 2001 2002 2003 2004 20050

2

4

6

8

1) The interest rate movements are explained by developments in inflation, growth in mainland GDP, wage growth and 3-month interest rates among trading partners. A more in-depth account was provided in Inflation Report 3/04

Source: Norges Bank

Interest rate movements that follow from Norges Bank's average pattern with a

90% confidence interval (grey area)

Sight deposit rate (red line)

Chart 3.11 The sight deposit rate and interest rate movements that follow from Norges Bank's average pattern for the setting of interest rates.1) Quarterly figures. 99 Q2 – 05 Q2

Norges Bank`s projections

0

1

2

3

4

5

6

7

2004 2005 2006 2007 200890

92

94

96

98

100

1) A rising curve denotes a weaker krone exchange rate2) The figure for 2005 Q1 is based on the average through 10 March

Source: Norges Bank

Interest rates (left-hand scale)

Import-weighted exchange rate (I-44) (right-hand scale)

Chart 1 3-month money-market rate and import-weighted exchange rate (I-44)1) 2) in the baseline scenario. Quarterly figures. Per cent. 04 Q1 – 08 Q4

Chart 2 Projected CPI-ATE and output gap in the baseline scenario. Quarterly figures. Per cent. 04 Q1 – 08 Q4

-2

-1

0

1

2

3

2004 2005 2006 2007 2008-2

-1

0

1

2

3


CPI-ATE

Output gap

Chart 3 Real growth in household disposable income1) and consumption. Annual figures. Per cent. 1990 – 20082)

-2

0

2

4

6

8

1990 1993 1996 1999 2002 2005 2008-2

0

2

4

6

8

1) Adjusted for extraordinary share dividends since 20012) Projections for 2005 -2008


Real income growthReal growth in consumption

-15

-10

-5

0

5

10

1980 1985 1990 1995 2000 2005-15

-10

-5

0

5

10

1) Adjusted for extraordinary share dividends since 20012) Projections for 2005 - 2008


Chart 4 Households’ net lending as a share of disposable income1). Annual figures. Per cent. 1980 – 20082)

Chart 5 Annual wage growth1) and unemployment rate (LFS). Annual figures. Per cent. 1993 – 20082)

0

2

4

6

1993 1995 1997 1999 2001 2003 2005 20070

2

4

6

1) Average for all groups. Including cost of additional vacation days2) Projections for 2005 -2008

Sources: Technical Reporting Committee on Income Settlements, Statistics Norway and Norges Bank

Unemployment rate

Annual wage growth

Chart 6 Labour force as a percentage of population aged 16 – 74 (labour force participation rate). Annual figures. Per cent. 1980 – 20081)

65

67

69

71

73

75

65

67

69

71

73

75

1980 1984 1988 1992 1996 2000 2004 2008

1) Projections for 2005 -2008


Labour force participation rate

Chart 7 CPI-ATE. Total and by supplier sector.1) 12-month change. Per cent. Jan 02 – Dec 082)

-6

-4

-2

0

2

4

6

2002 2004 2006 2008-6

-4

-2

0

2

4

6

1) Norges Bank's estimates2) Projections from March 05 – Dec 08



CPI-ATE


IR 1/05

Charts for boxes

Monetary policy since 3 November

0

1

2

3

4

5

6

7

8

Nov 02 Jun 03 Jan 04 Aug 04 Mar 050

1

2

3

4

5

6

7

8

Source: Norges Bank

Chart 1 Interval for the sight deposit rate at the end of each strategy period and actual developments. Daily figures. Per cent. 1 Nov 02 – 16 Mar 05

Strategy period 1/03

Sight deposit rate


Strategy period 3/03Strategy period 1/04


Strategy period 2/04Strategy period 3/04

Recent price developments

Chart 1 Prices for some imported consumer goods. 12-month change. Per cent. Jan 02 - Feb 05

-15

-10

-5

0

5

2002 2003 2004 2005-15

-10

-5

0

5


Cars

Clothing and footwear

Audiovisual equipment

Chart 2 Prices for goods and services produced in Norway1). 12-month change. Per cent. Jan 02 – Feb 05

-3

-1

1

3

5

7

2002 2003 2004 2005-3

-1

1

3

5

7

1) Adjusted for tax changes and excluding energy products. Percentage share of CPI-ATE in brackets. Norges Bank's estimates up to December 2003

2) Excluding energy and agricultural and fish products


Consumer goods produced in Norway2) (20)

House rents (18)

Services with wages as a dominant factor (7)

Other services (20)

Chart 3 Prices for food and non-alcoholic beverages. 12-month change. Per cent. Jul 02 – Feb 05

0

1

2

3

4

5

Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 050

1

2

3

4

5


Chart 4 Indicators of underlying price inflation. 12-month change. Per cent. Jan 02 – Feb 05

-1

0

1

2

3

4

5

2002 2003 2004 2005-1

0

1

2

3

4

5

Weighted median1)

CPI-ATE

Trimmed median2)

1) Estimated on the basis of 93 sub-groups of the CPI2) Price changes accounting for 20% of the weighting base are eliminated


Chart 5 CPI-ATE including and excluding prices for clothing and footwear1). Monthly change. Per cent. Jun 03 – Feb 05

-1

-0.5

0

0.5

1

Jun 03 Dec 03 Jun 04 Dec 04-1

-0.5

0

0.5

1

1) Norges Bank's estimates


CPI-ATE

CPI-ATE excluding clothing and footwear

Chart 6 CPI and CPI-ATE. 12-month change. Per cent. Jan 02 - Feb 05

-3

-2

-1

0

1

2

3

4

5

6

2002 2003 2004 2005-3

-2

-1

0

1

2

3

4

5

6


CPI

CPI-ATE

Why are long-term interest rates so low?

Chart 1 Government bonds with a 10-year maturity. US, Germany and Norway. Daily figures. Per cent. 3 Jan 00 – 10 Mar 05

Source: EcoWin

0

2

4

6

8

2000 2001 2002 2003 2004 20050

2

4

6

8

Norway Germany US

Chart 2 Long-term inflation expectations and implied 5-year rates 5 years ahead less long-term inflation expectations

0

1

2

3

4

5

6

1996 1998 2000 2002 20040

1

2

3

4

5

6

Sources: EcoWin and Norges Bank

Implied 5-year rates 5 years ahead less long-term inflation expectations

Inflation expectations

Chart 3 12-month rise in the CPI-ATE given different values of the neutral real interest rate, while assuming that it is 3 per cent

0

1

2

3

4

2004 2005 2006 2007 20080

1

2

3

4


r*=3

r*=3.5

r*=2.0

r*=2.5

r*=4.0

Chart 4 The output gap given different values of the neutral real interest rate, while assuming that it is 3 per cent

-2

-1

0

1

2

3

2004 2005 2006 2007 2008-2

-1

0

1

2

3

r*=2.5

r*=3.5

r*=3 r*=4.0

r*=2.0

Source: Norges Bank

Developments in household debt

0

2

4

6

8

2002 2003 2004 2005 2006 2007 20080

2

4

6

8

Chart 1 3-month money market rate in the baseline scenario and in alternative scenarios with high and low interest rates. Quarterly figures. 02 Q1 – 08 Q4

Source: Norges Bank

Baseline scenario Low interest rateHigh interest rate

Chart 2 Rise in house prices. Annual figures. Per cent. 1992 – 20081)

1) Projections for 2005 – 2008

Sources: Norwegian Association of Real Estate Agents, Association of Real Estate Agency Firms, Finn.no, ECON and Norges Bank

-10

-6

-2

2

6

10

14

18

1992 1996 2000 2004 2008-10

-6

-2

2

6

10

14

18


0

2

4

6

8

10

12

14

2002 2003 2004 2005 2006 2007 20080

2

4

6

8

10

12

14

Chart 3 Credit to households (C2). Annual percentage change in household debt. 2002 – 20081)

1) Projections for 2005 – 2008

Source: Norges Bank


140

160

180

200

220

2002 2003 2004 2005 2006 2007 2008140

160

180

200

220

Chart 4 Projections of household debt burden1). Annual figures. Per cent. 2002 – 20082)

1) Loan debt as a percentage of disposable income less the return on insurance claims.2) Projections for 2005 – 2008

Source: Norges Bank


0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 20080

2

4

6

8

10

Chart 5 Projections of households' interest burden1). Annual figures. Per cent. 2002 -20082)

1) Interest expenses as a percentage of disposable income less the return on insurance claims plus interest expenses2) Projections for 2005 – 2008

Source: Norges Bank


Evaluation of Norges Bank's projections for 2004

Chart 1 CPI-ATE1). Total and by supplier sector.2) 12-month change. Per cent. Jan 02 – Feb 05

-6

-4

-2

0

2

4

6

2002 2003 2004 2005-6

-4

-2

0

2

4

6

1) CPI-ATE: CPI adjusted for tax changes and excluding energy products2) Norges Bank's estimates



CPI-ATE


Chart 2 CPI-ATE. Projections for 2004 published at different times. Per cent

0

1

2

3

2002 2003 20040

1

2

3

Sources: Statistics Norway, the Ministry of Finance, DnB NOR, Nordea and Norges Bank

Statistics Norway

DnB / DnB NOR

Nordea

Actual inflation in 2004

Norges Bank

Ministry of Finance

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Dec-03 Jun-04 Dec-04-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Chart 3 CPI-ATE. Projections in IR 3/04, projections from time series model and actual price movements. 12-month change. Per cent. Dec 03 – Feb 05


Time seriesmodelActual CPI-ATE

Projections IR 3/04

Chart 4 Projections for the CPI-ATE1) and the output gap2) in Inflation Report 3/04 (red) and 1/05 (blue). Per cent

-2

-1

0

1

2

3

2002 2003 2004 2005 2006 2007 2008-2

-1

0

1

2

3

1) CPI-ATE: CPI adjusted for tax changes and excluding energy products2) The output gap measures the difference between actual and trend mainland GDP


CPI-ATE

Output gap

IR 3/04IR 1/05

0

1

2

3

4

5

FIN SN NB0

1

2

3

4

5

Chart 5 Mainland GDP. The last two projections published for 2005.1) Percentage change

5/04 10/04 12/04 3/05 3/0511/04

1) The figures under the columns refer to publication month and year

Sources: Revised National Budget 2004, National Budget 2005, Economic Survey 4/2004, and 1/2005, Inflation Report 3/2004 and 1/2005

Chart 6 CPI-ATE. The last two projections published for 2005.1) Percentage change

0

0.5

1

1.5

2

2.5

FIN SN NB0

0.5

1

1.5

2

2.5

12/04 3/05 3/0511/045/04 10/04

1) The figures under the columns refer to publication month and year

Source: Revised National Budget 2004National Budget 2005, Economic Survey 4/2004and 1/2005, Inflation Report 3/2004 and 1/2005

Low inflation in the Nordic countries

Chart 1 Harmonised indices of consumer prices in the Nordic countries and the euro area. 12-month change. Per cent. Jan 02 – Jan 05

-2

0

2

4

6

2002 2003 2004 2005-2

0

2

4

6

Source: Eurostat

Finland

Euro area

Denmark

Norway

Sweden

Annex

0

2

4

6

8

10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20050

2

4

6

8

10

1) The money market rate is normally about ¼ percentage point higher than the sight deposit rate.


Sight deposit rate


Chart 1 Norwegian interest rates. 3-month money market rate, sight deposit rate1) and 10-year government bond yield. Monthly figures. Jan 95 – Feb 05

10-year government bond yield

0

2

4

6

8

10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20050

2

4

6

8

10

1) Theoretical ECU rate up to and including December 1998


Euro area1)

US

Japan

Chart 2 3-month interest rates in the US, the euro area and Japan. Monthly figures. Jan 95 – Feb 05

0

2

4

6

8

10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20050

2

4

6

8

10


UK

Sweden

Chart 3 3-month interest rates in the UK, Sweden and among trading partners. Monthly figures. Jan 95 – Feb 05

Trading partners

85

90

95

100

105

110

115

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 200585

90

95

100

105

110

115

Import-weighted exchange rate, I-44(1995=100)

Trade-weighted exchange rate index, TWI (1990=100)

Chart 4 Trade-weighted exchange rate index (TWI) and import-weighted exchange rate (I-44).1) Monthly figures. Jan 95 – Feb 05

1)A rising curve denotes a weaker krone exchange rate.


5

6

7

8

9

10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 200560

70

80

90

100

110

120


NOK/EUR(left-hand scale)

NOK/SEK(right-hand scale)

Chart 5 Bilateral exchange rates. Monthly figures. Jan 95 – Feb 05

NOK/USD(left-hand scale)

0

5

10

15

20

1997 1998 1999 2000 2001 2002 2003 2004 20050

5

10

15

20

Source: Norges Bank

Credit to households

C2

Chart 6 The credit indicator (C2), credit to households and total credit to the non-financial private sector and municipalities, mainland Norway (C3). 12-month change. Per cent . Jan 97 – Jan. 05

C3 mainland Norway

0

2

4

6

8

10

2001 2003 2005 20070

2

4

6

8

10

1) The money market rate is normally about ¼ percentage point higher than the sight deposit rate.

Source: Norges Bank


Interest rate in the baseline scenario

Assumption for money market rate1). Quarterly figures. 01 Q1 – 08 Q4

The krone exchange rate (I-44)1). Forward exchange rate. Monthly figures. Jan 01 – Dec 08

80

90

100

110

2001 2003 2005 200780

90

100

110

Import-weighted exchange rate, I-44

Forward exchange rate 10 March

1)A rising curve denotes a weaker krone exchange rate.

Source: Norges Bank

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Inflation Report 1/2005. Main features of the economic outlook.

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