wages. other countries with inflation targets adjust the consumer price index for temporary and random factors in a variety of ways. in the uk, changes in interest rates have a strong, direct impact on the consumer price index. the bank of england aims at an inflation target that is adjusted for such effects. in new zealand, the inflation target is formulated as growth in the consumer price index, but the mandate specifies factors for which adjustments may be made. these factors include price changes due to substantial changes in commodity prices, changes in indirect taxes, considerable changes in economic policy which directly impact prices, as well as natural disasters. there are no continuous, fixed indicators that make adjustments for these factors, but adjustments are made if the effects are substantial. in sweden and canada, the inflation target is formulated as growth in the consumer price index without special exclusions. however, in practice, indices for underlying inflation are used in the implementation and assessment of monetary policy. sweden ’ s riksbank often refers to an indicator that adjusts for the direct effects of interest rates and net indirect taxes. the bank of canada has now defined a new indicator as the operational target of monetary policy. this indicator is the consumer price index excluding the eight most volatile components : fruit, vegetables, petrol, heating oil, natural gas, domestic air travel, tobacco products and interest rate costs. adjustments are also made for the effect of indirect taxes. the consumer price index is compiled to show developments in the cost of living. to some degree, the consumer price index overestimates developments in the cost of living. this is partly related to the fact that the measurement method does not adequately capture quality changes in the service industry. the boskin report ( 1996 ) discovered that the us cpi overestimated the actual cost of living increase by 0. 8 - 1. 6 percentage points annually. statistics norway has assessed the measurement error in the norwegian consumer price index. the conclusion is that the norwegian index also overestimates developments in the cost of living but that the deviation is probably well below one percentage point annually. national consumer price indices are constructed in various ways. for example, there are differences in the goods and services included, the relative weights assigned to the goods and services included and the frequency with which the weights are adjusted. in addition, the method of weighting the various sub - indices – ie whether the arithmetic or geometric average is used – may also affect the growth rate. eurostat ’ s harmonised index of consumer prices ( hi

now low, and household consumption has fallen recently. economic activity has been slightly weaker than we anticipated at the time of the september monetary policy meeting. at the same time, there are wide differences across industries. while companies supplying goods and services to the petroleum industry are experiencing strong growth, activity in the construction industry is declining. housing construction is low. in the secondary housing market, there is a large stock of unsold homes, and house prices have declined. the labour market is still tight. unemployment has remained low, as expected. but new job advertisements have decreased, and the number of employed appears to be lower than we anticipated in september. chart : inflation has fallen consumer price inflation has moved down recently, falling more in september than projected. energy prices have decreased sharply, and the rise in prices for other goods and services has also decreased more than expected. despite the price declines, inflation is still high. excluding energy prices, inflation is close to 6 percent. energy prices are very volatile, and futures prices indicate a renewed increase. when setting the policy rate, the committee must weigh various considerations. if we tighten too little, prices could continue to rise at a fast pace, partly because the krone exchange rate could weaken. the longer inflation remains elevated, the more costly subsequent disinflation may prove to be. but if we tighten too much, the economy will contract more than necessary, which is something we want to avoid. monetary policy is now having a tightening effect on the economy, and we have not yet seen the full effects of the past rate hikes. the committee assesses that the policy rate is now likely close to the level needed to tackle inflation. this means that we can take a little more time to assess whether there is a need to raise the policy rate further. chart : policy rate will likely be raised in december the information that has come in since the previous monetary policy meeting pulls in different directions with respect to the interest rate outlook. on the one hand, inflation has fallen more than expected, and economic activity has been slightly weaker than projected. on other hand, the krone has been weaker than anticipated. the krone depreciation may contribute to sustaining inflation ahead. whether additional tightening will be necessary depends on how the economy evolves. based on our current assessment of the outlook, the policy rate will likely be raised in december. the committee will have received more information about the inflation outlook ahead of its monetary policy meeting in december. if we become more assured