a trade - off between different considerations. if monetary policy only took into account the low level of inflation, the key policy rate would be rapidly reduced and kept close to zero for a good while. inflation might then pick up faster, partly as a result of a weaker krone. in the light of the trade - off against other considerations, however, the bank does not want to accelerate the pace of inflation. the result would be a pronounced impact on output and employment and increased risk of a buildup of financial bis central bankers ’ speeches imbalances. a prolonged period of low interest rates may increase the risk that debt and asset prices will be driven up to levels that are unsustainable over time. when weight is also given to the two other criteria, the interest rate path therefore becomes higher even though the level of the key policy rate is low from a historical perspective. the norwegian economy is well poised to face new shocks and challenges. while many of our trading partners are struggling with low growth, high unemployment and mounting government debt, the norwegian economy still features buoyant activity, low unemployment and government budget surpluses. the petroleum industry and oil revenues have given us a solid economic foundation compared with other countries. at the same time, the oil revenues and the high cost level pose certain challenges to the norwegian economy. with today ’ s high oil prices, petroleum investment is likely to expand sharply in the years ahead. petroleum - related industries are faring well. public sector enterprises are also enjoying a favourable and stable environment. internationally exposed industries are facing sluggish markets and high costs. norway ’ s dual economy is coming into clearer evidence. petroleum activity influences the norwegian economy partly through actual production activity and partly through government spending of petroleum revenues. in 2011, petroleum revenue spending over the central government budget was below 5 percent of mainland gdp, while demand from the petroleum sector was about 17 percent. bis central bankers ’ speeches high oil prices and investment growth are fuelling demand for labour in the oil sector and the supplier industry. in an economy with close to full employment, this leads to intensified competition for skilled labour. the result is reduced profitability in other internationally exposed industries. the phasing in of a new, profitable industry and increased spending over public budgets have the effect of crowding out other activity. some decline in other industries is an inevitable consequence of domestic spending of oil revenues. for the economy to be sustainable over a longer horizon, it is important to find an appropriate balance and prevent

inflation in norway further ahead. at the same time, futures prices indicate that electricity prices will remain lower going forward than last year. lower electricity prices reduce business costs. that will also contribute to dampening inflation. chart : wage growth has risen although there are forces that are now pushing down on inflation, there are other conditions suggesting that inflation will remain elevated for some time ahead. wage growth has risen gradually in recent years. this year the social partners agreed on pay increases that will result in the highest wage growth in 15 years. this year's pay increases are not high compared with the rise in the cost of living facing many households, but the pay increases nevertheless add to the costs facing businesses. that will push up on inflation ahead. chart : the krone depreciated markedly in spring the krone exchange rate depreciated markedly over spring. the krone has appreciated somewhat this summer but is still weaker than around the beginning of the year. norges bank has not defined an exchange rate target. nevertheless, the exchange rate is of importance to interest rate setting because it has an impact on inflation. import prices for households and businesses rise when the krone depreciates. since spring 2022, the policy rate has been raised sharply and rapidly. the still - high level of inflation may give the impression that monetary policy tightening is not working. but had we not raised the policy rate, inflation would have been higher, in part because the krone would have been weaker. for that matter, we have yet to see the full effects of the past rate hikes. chart : growth in the norwegian economy has slowed the interest rate is now helping to cool the economy. activity in the norwegian economy is still high. employment is high and unemployment has remained low. but activity is now rising more slowly, with pressures in the economy easing. prices for existing homes are rising at a slower pace, and the stock of unsold homes has increased. the peak of the business cycle was likely passed towards the end of 2022. for indebted households, interest expenses have risen considerably. so far, many consumers have been able to maintain consumption thanks to the savings accumulated during the pandemic. but for a period ahead a larger number will likely have to tighten spending to make ends meet. many people are concerned about their finances and are questioning whether such a sharp increase in the policy rate is truly necessary. we are aware that there is a cost associated with raising the interest rate,