Again, as noted, we have a variety of tools to remove excess reserves at a time when that becomes appropriate. As a result, I agree with many forecasters who expect disinflation in the near term. The substantial excess capacity in labor markets that I mentioned earlier has caused compensation to decline quite markedly (see Figure 11). Because employee compensation is the main cost component for most companies, lower labor costs enable businesses to improve profit margins without substantial price increases – particularly as the demand for goods and services improves. This brings us back to Yogi Berra, who famously said, “When you come to a fork in the road, take it.” At times, a fork in the road is exactly what confronts monetary policymakers. We would face a fork, for example, if inflationary pressures were building despite a high unemployment rate. In this case, the choice between restraining inflation and supporting employment is a difficult one, and the policy decision becomes more complicated. However, with employment well below the level of full employment, and disinflation continuing to move us away from my own inflation target of 2 per cent, one does not currently need to make such trade-offs. Another possible complication could occur if very low interest rates were causing excessive, leveraged bets that were inflating the price of assets that have macroeconomic importance. While we need to be vigilant against the buildup of asset bubbles, there is little evidence of such a problem now.

In comparison with other countries, productivity gains in banks and other service sectors stand out in particular. Examples are automated processes and swifter payments in the financial industry, and improved inventory and management systems in commerce and transport. This reduces production costs. The business sector is quick to adapt and change, and to make use of new technology that is available in an international market. This is probably due to the modernisation in the 1980s and 1990s of the way the economy functions, which resulted in more efficient markets. Although satisfactory current statistics for central government and local government productivity are not available, government agencies have probably also become more efficient. New technology and new organisational structures have certainly provided opportunities to increase efficiency. Third, an ample supply of foreign labour has been an important factor behind output growth. In particular, the supply of foreign labour has increased sharply after EU enlargement in 2004. Improved terms of trade, high productivity growth in the Norwegian business sector and the increase in labour supply have resulted in a favourable environment for the Norwegian economy. Unemployment has declined considerably and is now very low. The labour market is tight. Unemployment has not been as low since the second half of the 1980s, and employment has risen sharply this year. Wage-earners and enterprises have both fared well. Cheap imported goods have resulted in a subdued rise in consumer prices and a substantial increase in wage-earners’ real wages. High export prices have restrained the rise in real labour costs.