We had to abandon our fixed exchange rate policy in December 1992. One important reason for this was the inherent weaknesses in the fixed exchange rate system in an environment of free capital flows and deep financial markets. When the fixed exchange rate policy was formally abandoned, there was a risk that the Norwegian economy could again lose its nominal anchor. However, the krone exchange rate showed little movement and soon found a new range. Fiscal policy had a stabilising effect. The exchange rate remained stable until autumn 1996. This was partly due to low wage growth and a level of total demand that did not generate pressures in the economy. After a period, the krone began to show wider fluctuations. The experience of the latter half of the 1990s demonstrated that monetary policy cannot fine-tune the exchange rate. Developments in the international financial markets led to greater fluctuations. And more fundamentally – exchange rate developments no longer sent signals back to wage formation and fiscal policy when labour market pressures mounted and incomes policy failed. High petroleum revenues, fiscal slippage and expectations of increased use of petroleum revenues contributed to this. The exchange rate was therefore no longer suitable as a nominal anchor. As a result, Norges Bank gradually placed increasing emphasis on low and stable inflation. In 2001, the Norwegian authorities decided that monetary policy in Norway was to be oriented towards low and stable inflation through a numerical target for inflation, as was the case in many other countries later in the 1990s.

The rental market in outlying areas, which now indirectly has a larger weight in the CPI, is thin. Hence, the rental market does not necessarily provide a representative expression of owner-occupants’ housing costs. It is difficult to estimate the cost of owner-occupied housing. The harmonised index of consumer prices for the euro area, which the ECB uses as its measure of inflation, has not included owner-occupied housing so far. Nor do many of the national consumer price indices in the EU include this component. This is clearly not a good solution because housing costs normally account for a large portion of households' total cost of living. Eurostat, the European statistical agency, has therefore initiated a pilot study where they use the net acquisition approach.6 This approach is different from our method in that the treatment of purchasing a house for owner occupation is the same as for all other goods in the consumer price index. Only the household sector’s net acquisition of dwellings is included. In other words, purchases of dwellings bought from other private households are excluded. In addition, expenditures related to major repairs and conversions of a dwelling, and other expenditures such as estate agent fees, indirect taxes and insurance are also included in the acquisition approach. Land is treated as an asset and excluded. If European countries switch to including housing costs estimated using the acquisition approach, it will be natural for Norway to publish a comparable index for consumer prices, cf. figures based on Eurostat’s current method are also presented in Norway.