An increase in inward labour migration and the opportunities provided by an international labour market may have prompted participants in local and centralised wage negotiations to place greater emphasis on the considerably  BIS Review 92/2006  1  higher wage level in Norway relative to our trading partners and potential job vulnerability. At the same time, inward labour migration has reduced bottlenecks in some industries. However, despite increased labour market flexibility, the risk of higher growth in labour costs is now probably rising. The business sector in the southwestern part of Norway includes a large number of petroleum-related activities and manufacturing companies. The number of public sector employees is clearly lower in Rogaland than in the rest of the country. The industry structure in Hordaland is very similar to the rest of the country. Information from Norges Bank’s regional network confirms the impression that the cyclical upturn is continuing. Region South-West reports solid profitability, a high activity level – higher than average for the rest of the country – and a positive market outlook. Growth in the activity level is particularly high in the supplier industry and services. Domestically-oriented manufacturing and retail trade also report a solid rate of growth. On the other hand, growth has slowed in the building and construction sector. This probably reflects a particularly high activity level and marginal spare capacity in this sector. The export industry reports steady solid growth, although reports from the contacts in the regional network varied somewhat in the August contact round.

It seems that strong competition between various producers within the food industry and the construction industry has had a dampening impact on inflation. In addition, productivity growth in retail trade has been high in the past few years. Intensified competition may also have contributed to curbing the rise in prices for banking and insurance services. Several factors point to higher inflation in the period ahead. Capacity utilisation in the Norwegian economy is picking up. This will contribute to a higher rise in prices for domestically produced goods and services. A tighter labour market will probably lead to higher wage growth in the coming years. High energy prices are feeding through to producer input prices. Outlook for the years ahead Growth in disposable income has been high in recent years. Lower interest expenses and relatively high real wage growth have resulted in an increase in household purchasing power. The rise in house prices may also have fuelled growth in private consumption. With high growth in employment and falling unemployment, consumption growth is expected to be high again this year. Since the publication of the June Inflation Report, electricity prices have increased to a further extent than expected. Forward prices for next winter have also increased. Higher electricity prices may in isolation reduce household purchasing power somewhat. On the other hand, growth in household income is high and market expectations indicate a fall in electricity prices later next year. A continued rise in house prices may contribute to holding up consumption growth.