inflation of approximately 2. 5 per cent over time. in its conduct of monetary policy, norges bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment. current economic situation since the summer of 2003, there has been a clear upturn in the norwegian economy. low domestic interest rates, increased petroleum investment, favourable prices in important export markets, and a strong upturn in the world economy have contributed to solid growth in the norwegian economy. so far in the upturn, the mainland economy has grown by an average of close to 4 per cent annually. current information on economic developments indicates that the upswing is continuing. corporate sector profitability is good. there is strong growth in employment, unemployment has fallen markedly, and household demand continues to rise. unemployment is now at a historically low level. seasonally adjusted, registered unemployment stood at 2. 3 per cent of the labour force in october. nevertheless, wage moderation has generally prevailed so far. the opportunities provided by an international labour market may have prompted participants in local and centralised wage negotiations to place greater emphasis on the considerably higher wage level in norway relative to our trading partners, and potential job vulnerability. at the same time, labour migration has reduced bottlenecks in some industries allowing the economy to expand more briskly than would seem warranted judging by previous experience. inflation has remained low. according to our indicators underlying inflation appears to be in the range of ¾ - 1½ per cent. low underlying inflation is not a result of weak economic growth but rather reflects favourable developments on the supply side of the economy. strong competition, high productivity growth, and a shift in imports towards low - cost countries have dampened domestic price increases. presently, there is little spare capacity in the norwegian economy. demand is still strong and real income growth high. at the same time, the krone exchange rate has depreciated. this should over time result in a pick - up in inflation. the global economy has shown strong growth, and continued solid growth among our trading partners is in prospect. however, there is uncertainty regarding the slow - down in the us economy. consumer price inflation among a number of our trading partners has risen as a result of rising energy prices, but the increase in prices for other goods and services generally remains moderate. monetary policy the challenge to monetary policy in the present conjuncture is how the interest rate should be set to steer inflation towards the target while at

enormous. contracts that would have taken some time to establish themselves in a pit can be quickly listed on screen at relatively little cost. trading is now possible in such diverse commodities as electricity, telecoms bandwidth and even the weather. the organisers of this event may, in future, be able to hedge their exposure to fluctuating wine prices using exchange - traded futures based on the finest premier cru, i suspect this is one contract where traders would be happy to go to physical delivery. we central bankers will have to stick to our usual vin ordinaire. in any event it will be fascinating to see what other contracts emerge over the coming months. of course, not all contracts that are launched will be successful, and it ’ s interesting to reflect on what makes a successful derivative contract. lessons can often be learned from looking back to the past. not far from this location is the home of the london metal exchange. its origins can be traced back to 1571, when traders in metal and a range of other commodities began meeting at the royal exchange. what was originally a domestic market in physical metal became a major global market, and by the early 19th century traders had been forced to use nearby coffee shops. as the uk started importing large quantities of metal from abroad during the industrial revolution, the need emerged for importers to protect themselves against price movements during the long voyage from places like chile and malaysia. the “ futures ” market which developed from those humble beginnings continued to grow and, in 1877, the london metal exchange company was formed. that market was successful for a number of reasons. volatility in the price of the underlying product made the contract attractive to hedgers and speculators alike. technology - the telegraph would you believe! - encouraged the market ’ s growth by making shipment arrival dates more predictable. the lme had a first mover advantage that still stands. liquidity flourished as traders followed one another in using the new market. so there are a number of lessons for today ’ s exchanges, to do with the need to respond to market needs, the need to make full use of available technology, and so on. role of clearing houses it will be very little surprise to many of you that, as the central bank, the aspect of these developments which interests us most is the management of risk. clearing houses have traditionally played a central role in the derivatives markets and continue to do so as those markets expand. they are also increasingly active in the underlying cash markets.