percentage points and is now approximately the same as among our trading partners. the krone has depreciated by about 6 per cent over the past year and the krone exchange rate, measured by the import - weighted index i - 44, is now at the level prevailing in march 2002. this is approximately on a par with the average for the 1990s. in the past few days, the krone has appreciated again somewhat. in february, inflation stood at – 0. 1 per cent. apart from some temporary, technical factors that together account for 3 - 4 tenths of a percentage point, three main factors have contributed to the substantial deviation from the inflation target : • first, the global downturn had considerable implications for the impact of interest - rate setting in norway, via the exchange rate for instance. • second, low external inflation and rapid shifts in the international division of labour has resulted in a fall in prices for imported goods and services. this also applies when these prices are measured in terms of what norwegian importers pay in foreign currency. the change in trade patterns has made a considerable contribution to the sharp decline in prices for clothing, footwear and audiovisual equipment. rapid technological advances have also pushed down prices for audiovisual equipment. • third, competition has probably increased in the retail industry and other service sectors in norway in recent years. initially, heightened competition affects companies ’ profit margins. but enterprises will respond by reducing their costs. this will occur in part in the individual business, but subcontractors will also be required to reduce their prices and enhance efficiency. therefore, increased competition usually triggers higher productivity growth in the economy. low inflation may therefore be matched by growth in productivity. prices for domestically produced goods and services are expected to rise towards the beginning of 2005 due to higher capacity utilisation in the norwegian economy. strong employment growth may contribute to somewhat higher wage growth than in 2004. at the same time, domestically produced goods and services are affected by exchange rate changes, albeit with a longer lag than is the case for imported consumer goods. there are clear signs that the global economy has passed the trough. however, while the outlook is brighter, price inflation is still low and interest rates are being kept unusually low. economic growth is high again in the us, but there is still excess production capacity and very low inflation. workforce reductions may no longer be as severe, but companies are still not hiring new staff. it may take some time before interest rates are increased

svein gjedrem : monetary policy and the economic outlook speech by mr svein gjedrem, governor of norges bank ( central bank of norway ), at sr - banken, stavanger, 19 march 2004. the text below may differ slightly from the actual presentation. the address is based on the assessments presented at norges bank ’ s press conference following the executive board ’ s monetary policy meeting on 11 march, inflation report 1 / 04 and on previous speeches. the charts in pdf - format can be found on the norges bank ’ s website. * * * the operational target of monetary policy as defined by the government is inflation of close to 2. 5 per cent over time. the target is symmetrical - it is just as important to avoid an inflation rate that is too low as an inflation rate that is too high. the inflation target provides economic agents with an anchor for inflation expectations. it therefore influences their decisions concerning saving, investment, budgets and wages. history shows that there is no long - term trade - off between lower unemployment or stronger economic growth and higher inflation. we witnessed this in the 1980s when growth was low and inflation high. the task of monetary policy is to provide a nominal anchor. low and stable inflation is such an anchor. there are several reasons why it is an advantage for inflation to be higher than zero : • the structure of the economy is in flux. demand for labour with different qualifications is changing. this requires changes in relative wages. there are rigidities in nominal wage growth. nominal wages do not readily fall. with some inflation, relative wages can change without a fall in nominal wages. there may also be rigidities in the pricing of goods and services. some degree of inflation will thus oil the economic machinery. • in periods, inflation and economic growth will be low. it is then appropriate for real interest rates to be low, or even negative. nominal interest rates cannot be set below zero. if inflation becomes entrenched at a low level or near zero, the interest rate will be less effective as an instrument. • there are different ways of measuring inflation. the consumer price index tends to overestimate actual inflation. the most important source of measurement errors is probably the difficulty of distinguishing between changes in the quality and price of goods. in other countries, findings show that the consumer price index overestimates actual inflation to the order of ½ - 1 per cent. the inflation target is a vehicle for, not an obstacle