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

jarle bergo : cyclical developments, monetary policy and the krone exchange rate speech by mr jarle bergo, deputy governor of norges bank ( central bank of norway ), at østfold university college, sarpsborg, 28 september 2006. the text below may differ slightly from the actual presentation. the speech is based on the assessments presented at norges bank ’ s press conference following the executive board ’ s monetary policy meeting on 27 september, inflation report 2 / 06 and previous speeches. * * * cyclical developments the cyclical upturn in the norwegian economy continues. growth has been strong since mid - 2003. real income growth has been solid in both the household and corporate sectors. household demand, which spurred the recovery, is still on the rise. many norwegian export companies are operating at full capacity with solid profit margins. high prices for norway ’ s export goods have contributed to a strong improvement in norway ’ s terms of trade. at the same time, there is solid growth in general government demand for goods and services. fixed investment has gradually become an important driving force behind the economic upturn. over the past couple of years, increased mainland business investment has contributed to the upturn in the norwegian economy. corporate profitability is high and companies are positive about the outlook ahead. the order book situation in manufacturing is highly satisfactory, and optimism appears to be high in most business sectors. according to our regional network, the market situation is also positive for corporate services. petroleum investment has reached a high level after three years of strong growth. the large ormen lange and snøhvit projects have contributed to the growth in investment. high oil prices led to buoyant activity even at fields that have been in production for a long period. investment activity is also expected to remain high after the large development projects are phased out. information from the regional network suggests that petroleum investment is generating considerable impulses to activity in norway ’ s coastal regions. according to the network, suppliers to the petroleum industry are expecting sustained strong growth over the next few months. activity in the housing market appears to be buoyant again in 2006. in the past two years, housing investment has risen to a very high level. in 2005, the number of housing starts was the highest since the beginning of the 1980s. over the past six months, signs of labour market tightening have come into increasing evidence. employment has accelerated and unemployment is falling rapidly. it appears that wage growth will be somewhat higher