in 2006 than in 2005, as expected. output has increased more rapidly than capacity over the past two to three years. the margin of idle capacity prevailing at the beginning of the upturn has been utilised. at the same time, consumer price inflation adjusted for tax changes and excluding energy products ( cpi - ate ) remains low and is lower than the inflation target. other indicators of underlying inflation also show low inflation, albeit not as low as the cpi - ate. in norway, price impulses from imported consumer goods have been negative virtually every year since the mid - 1990s. this is partly due to increased trade and a shift in imports towards low - cost countries. the rise in prices for domestically produced goods and services pushed up cpi - ate inflation until this year. since the beginning of the year, domestic inflation has edged down, hovering around 1. 3 per cent. the rise in prices has been lower than expected for both goods and services. there may be several factors behind the low inflation rate. strong competition between various producers within the food industry and the construction industry may have 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. global growth has been high in recent years. in the us and in china, growth has been high for a long period. growth picked up in japan last year, and this year conditions are conducive to increased growth in the euro area. growth in china is expected to remain strong and contribute to pushing up growth in the global economy. growth in the us is expected to be somewhat lower. against this background, it appears that gdp growth among norway ’ s trading partners will be high again this year and remain firm over the next few years. however, the housing market in the us has weakened more than expected in recent months, and the uncertainty associated with economic developments in the us ahead has increased. interest rates are still low among many of our trading partners, in spite of the increases in several countries as a result of rising energy prices and higher consumer price inflation. in the us, there are now expectations that the interest rate peak has been reached, and that it will be lowered in the course of summer 2007. an increase in policy rates is expected in the euro area, sweden, the uk, australia, japan and switzerland in the coming year, but the increase is expected to be somewhat smaller than

fund greater future pension expenditures. this last would require both an increase in public saving ( reducing budget deficits and raising the share of capital expenditure ) and an expansion of the private pillar. some of these options have the normative appeal that the current workforce shares part of the burden with future taxpayers. in particular, policies to raise the age at retirement and increase current savings seem preferable, at least for italy, given that in the future people will not only live longer but will also be active and healthy longer. 7 moreover, such policies are likely to increase potential gdp and this will help to alleviate the financial consequences of ageing. morcaldo ( 2007 ). the often overlooked fact that the returns achieved in a funded system depend on demographic developments has been highlighted among others by mirrlees ( 1997 ) and the pension commission ( 2004 ). see also visco ( 2002 ). unfortunately, this does not mean that health - related expenditures will be less burdensome. on one hand, scientific and technological progress in the medical field will probably make more disease curable and lead to higher overall expenditures. on the other hand, a large part of medical expenditures is in any case incurred in the very last years of one ’ s life. all in all, there is a growing consensus among experts and policy - makers that lengthening the average working life and increasing pre - funding are essential to any credible strategy to meet the challenges of ageing. to increase the effective age of retirement, it is important to reduce the disincentives to work embedded in social security rules. payg systems are often not neutral with respect to the retirement decision. indeed, in many social security systems workers ’ pension wealth ( i. e. the discounted value of future pension payments ) decreases with age at retirement, generally because of the weak linkage of benefits to lifetime contributions. the ndc system introduced in italy in 1995 should offset this distortion, as benefits depend on past contributions and on expected longevity at retirement. however, the new system is being phased - in very slowly. other potential interventions relate to the labour market, for example offering broader training opportunities to older employees, increasing flexibility in age - earnings profiles and improving on employment arrangements. if we enlarge our framework to account for uncertainty and move beyond the distinction between funded and unfunded pension schemes, a second distinction comes to the fore, namely that between defined contribution ( dc ) and defined benefit ( db ) systems. the two distinctions are independent of one