We agree that it was important to ascertain differences across sectors during lockdown to properly assess developments in the Norwegian economy. In such a unique situation as the pandemic, assessing potential output was a particular challenge. We probably had a more long-term perspective on potential output than the assumptions underlying Norges Bank Watch's estimate. Some business sectors were locked down, while others experienced robust demand. We assumed that some of those who were prevented from working in locked-down sectors still comprised part of potential output. The policy rate was reduced to zero to dampen the economic downturn by, for example, making it easier for Norwegian households and firms to service their debt. Low interest rates also helped activity to recover quickly once the pandemic loosened its grip. We were concerned with reducing the risk of unemployment becoming entrenched at a high level. Monetary policy was aimed at preventing such an eventuality. It can then be discussed how soon we should have started raising the policy rate. But I would remind you that when the policy rate was raised in autumn 2021, there was still considerable uncertainty about the further evolution of the pandemic. Norges Bank Watch points out that our Regional Network could be utilised better to understand price developments. We have asked network contacts about their selling prices ever since the network started in 2002. Unfortunately, these indicators have not been so useful for our inflation projections, and we have therefore chosen to exclude them from the survey.

Moreover, in those European countries and regions where competitiveness has been lost in the past and/or the unemployment rate remains too high, it is important that wage increases do not fully exhaust productivity gains in order to provide incentives for firms to create additional jobs. In this respect, sufficient wage differentiation is also required to improve the employment opportunities for less skilled-workers where there is high unemployment for this category of employees. The extent to which an increase in nominal wage growth leads to upward pressure on inflation depends crucially on trend labour productivity growth. Under normal circumstances, stronger labour productivity growth would justify an increase in nominal wage growth, thus allowing wage earners to participate in economic growth without adding to inflationary pressures. But, for the same reason, without sustained improvements in labour productivity, higher nominal wages would not lead to improvements in real purchasing power, but undermine job creation and fuel inflationary pressures. Against this background, the ECB’s Governing Council considers that, features enforcing wage rigidities and leading to nonoptimal wage setting – in particular indexation of nominal wages to the consumer price index – should be avoided. This is particularly accurate in this period where the euro area economy is currently in a juncture which is dominated by exogenous price shocks and uncertainty about the outlook of the real economy. Headline inflation which has been pushed up by external pressures on energy and food prices, is today significantly above 2% in the euro area and even higher in Spain.