economic perspectives annual address by governor ida wolden bache to the supervisory council of norges bank thursday 15 february 2024 economic perspectives 2024 tillit at økern © lars ø ramberg / bono 2023. along one of the major ring roads around oslo stands an empty building. 1 on its facade the norwegian word for trust ( tillit ) shines towards us. while the building has been empty for almost 20 years, the word is certainly not. it is replete with meaning and implications. trust forms the leitmotif of my speech this evening – why trust is important and how we can preserve it. the light installation tillit ( trust ) was created by lars ø. ramberg for the økern! project as a part of “ art in public spaces and urban development in hovinbyen ”. tillit is supported by the city of oslo art collection, koro, økern sentrum ans and signify as. norges bank economic perspectives 2024 a well - functioning democracy is built on trust – political trust and institutional trust. international comparisons show that norway enjoys a high degree of trust both between its people and between its people and government. 2 we are privileged to live in a country with such a high level of trust capital. perhaps trust is the most important capital we have, which we also want to pass on to future generations. money is also grounded in trust. for thousands of years, economic life has involved various forms of money. money makes the exchange of goods and services more efficient. what we are willing to accept as money has naturally evolved over time from the world ’ s first known currency, cowrie shells, to today ’ s electronic money. for money to function as a medium of exchange, there must be trust in its value. this year we are celebrating the 750th anniversary of the code of magnus lagabøte. 3 the king was also a reformer of the monetary system. he took seriously the importance of trust in the value of money. the reforms he implemented have come to stand as a watershed moment in norwegian monetary history. 4 in his time, the royal power was the guarantor of the value of money. today, most governments have delegated the conduct of monetary policy to the central bank. by giving the central bank the task of ensuring monetary stability and sufficient autonomy, the promise of preserving the value of money becomes more credible. but that promise must be followed by action. in today ’ s

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