depend on whether we can influence the source of the changes. the response depends on how long the disturbances are expected to last and the extent to which they fuel inflation via spillovers to other prices and wages. if inflation remains high for a long time, there is a risk that households and firms become accustomed to high inflation, and plan for high inflation in price and wage setting. inflation may then become ingrained and difficult to bring down again. when inflation took off in spring 2022, it became clear that the policy rate level was no longer appropriate for the economic situation in norway. the policy rate was raised quickly, and in autumn 2022, the rate reached a level where it likely began to have a tightening effect on the economy. at its meeting last week, the monetary policy and financial stability committee raised the policy rate to 3. 25 percent and will most likely raise the rate further in june. let me say a little more about economic developments over the past year and our assessments. the pandemic led to higher prices for energy, metals and other globally traded goods. the price increases were amplified by russia's invasion of ukraine. the rise in these prices is an important source of the high level of consumer price inflation. high energy prices and other input costs have generated higher costs for businesses, who have in turn raised their selling prices. chart 4 : a year ago the economy was in high gear when the cost shock hit norway in spring last year, the economy was in high gear, with strong demand and higher - than - potential output in the economy. many businesses were facing labour shortages. economic activity remained strong through 2022. excess savings accumulated during the pandemic have enabled many people to sustain consumption despite high inflation and higher interest rates. at the same time, mainland business investment has risen substantially. unemployment has remained low, and the employment rate has increased to the highest level seen in over 10 years. in recent months, economic growth has slowed. the labour market is still tight, but labour shortages have eased. recently, unemployment has risen slightly. house prices fell in autumn 2022 but have since edged up again. chart 5 : in 2022 wage growth reached its highest level since 2011 in 2022 wage growth reached its highest level since 2011 and is expected to rise further this year. higher wage growth means higher business costs, and high economic activity may make it easier for businesses to pass on higher costs to their selling prices. overall mainland business profitability is solid, even though there

in many countries. in the us, fiscal policy has become somewhat more expansionary after many years of relatively tight budgets. many european countries have also taken a pause in the consolidation of state finances. norges bank increased the sight deposit rate – which is our key rate – by a total of 1½ percentage points last year. so far this year, the key rate has remained unchanged. as a result, the difference between short - term rates in norway and other countries has increased. money market rates are about 3 percentage points higher than among our trading partners. money market rates are 3½ percentage points lower in sweden than in norway. the wider interest rate differential implies, in isolation, a somewhat tighter monetary policy. the krone becomes a more attractive investment currency, and this may have contributed to strengthening the krone. investments in the nok market are now generating a return of 7 per cent. a stronger krone reduces the cost of imported goods and services for enterprises and households. imported inflation is lower. so far this year, the import - weighted krone exchange rate has appreciated by about 3 per cent. substantial uncertainty surrounding international economic developments there is considerable uncertainty attached to international economic developments. in the us, industrial output and retail sales have weakened markedly over the last three months. between march and april employment declined by more than 200 000. gdp growth slowed from an annualised rate of a good 5 per cent in the first half of 2000 to about 1 per cent in the fourth quarter of last year and the first quarter of 2001. us equities, as measured for example by the dow jones index, declined markedly through 2000 and in the first quarter of this year. stock markets in other countries also fell during this period. equity prices have picked up again since the beginning of april, however. in addition, industrial commodity prices and oil prices have risen over the last month. moreover, long - term interest rates have increased. these developments may indicate that many operators in financial markets and commodity markets have again become somewhat more optimistic about the prospects ahead. household and business confidence also deteriorated through the latter half of last year and early this year, but has remained steady over the last two to three months, as illustrated by the confidence indicators in this chart. there is substantial uncertainty associated with developments in japan. industrial output and exports have declined. the financial sector is struggling in the face of large losses and poor performance, and the general price level is falling. in the euro area the picture is mixed. growth