entrants may have increased competition in this industry. these prices have also edged up recently. low inflation in the nordic countries inflation has also declined in the other nordic countries and is relatively low. common factors have been increased efficiency in distributive trades and service industries and the low rate of increase in prices for imported consumer goods. in highly open economies such as the nordic countries, we may have to expect somewhat wider variations in inflation than other countries. euro - area inflation has remained at a higher level even though developments in activity are weak in the euro area. stable inflation expectations experience may indicate that inflation expectations remain stable even if inflation varies somewhat as long as the interest rate is used actively to moderate variations. monetary policy cannot fine - tune economic developments, but it can avoid the largest effects when the economy is exposed to disturbances. stable inflation expectations can also have a stabilising effect on exchange rate expectations, but growth in public expenditure and prices for norwegian exports goods also have an influence on exchange rate expectations. surveys conducted by tns gallup show that inflation expectations two and five years ahead have remained virtually unchanged over the past year. a selection of economists expect annual inflation to be about 2½ per cent five years ahead and somewhat lower two years ahead. norges bank has sought to counter a fall in inflation expectations. through the first half of 2004, we stated : “ with the current low level of inflation, it is appropriate to be particularly vigilant as regards developments in consumer prices. ” 1 at the monetary policy meetings between september and november, the executive board stated that “ particular weight must be given to factors that may delay an increase in inflation. ” 2 inflation picked up towards the end of the last year. when we became more confident that inflation would not continue to fall, but appeared instead to be picking up, we refrained from repeating this statement. see norges bank press releases of 21 april and 26 may. the press releases following the monetary policy meeting of 17 december 2003, 28 january, 11 march and 1 july 2004 included similar formulations. see norges bank press releases of 22 september and 3 november. output and employment after slowing around the beginning of 2003, growth in the norwegian economy picked up markedly through 2004. the recovery has been broad - based. the easing of monetary policy contributed to a sharp rise in private consumption and housing investment. activity has picked up considerably in service industries and the construction sector. high petroleum investment, the global economic recovery, a weaker k

and at the start of the relevant strategy period. developments in inflation in 2004 and the first months of 2005 between december 2002 and march 2004, the key rate was reduced by a total of 5. 25 percentage points. the interest rate has since remained at 1. 75 per cent. the interest rate decline can be ascribed to a number of factors. in late autumn 2002, inflation started to fall. the inflation projections were also revised down. new information gradually emerged about the outlook for other countries and the norwegian economy, indicating that inflation might be very low. inflation fell markedly from summer 2003, and continued to fall up to spring 2004. consumer price inflation has subsequently edged up, albeit slowly. low international interest rates and favourable terms - of - trade developments for norway have curbed the effects of low interest rates on the krone exchange rate. higher imports from low - cost countries, competition and more efficient norwegian production and trading processes have also kept inflation low. one year ago, underlying inflation was close to zero. in april 2005, the year - on - year rise in consumer price inflation adjusted for tax changes and excluding energy products was 0. 8 per cent. the rise in prices for domestically produced goods and services has been higher and has picked up over the past year. adjusted for the direct effects of the decline in interest rates on house rents and lower rates for day - care places, the rise in prices was 1. 0 per cent in april. alternative measures of inflation also show that underlying inflation has edged up. background for the deviations from the inflation target in 2004 and the first months of 2005 prices for imported consumer goods continued to fall through 2004, but at a slower pace than in the previous year. a weaker krone in 2003 contributed to a deceleration in the fall in prices for clothing and footwear and the decline in prices for audiovisual equipment moderated. the decline has accelerated in the first months of this year, however. the wide variations in prices for some imported consumer goods, in particular footwear and clothing, can have an unexpected impact on consumer price figures from one month to the next. in 2004, the fall in prices for some services made a strong contribution to keeping inflation low. the fall in airfares and prices for telecom services was particularly pronounced. intensified competition in these industries has probably reduced operating margins and driven up productivity. in recent months, airfares have picked up again. in addition, the rise in food prices was very subdued in 2004. new