these short - term contracts will appear as an increase in norway ’ s services imports, and contribute to increasing the supply of goods and services without drawing on domestic resources. inflation decelerated markedly from summer 2003 and continued to fall in the beginning of 2004. subsequently, consumer price inflation has picked up, albeit at a gentle pace. in july, the year - on - year rise in consumer prices adjusted for tax changes and excluding energy products was 1. 1 per cent. prices for imported consumer goods have continued to fall. the price fall may reflect high productivity growth in the production of some goods and large investments to increase production capacity, particularly in china. this has led to strong competition and a low rise in prices for internationally traded goods. the shift in imports, for example clothing imports, towards low - cost countries seems to be substantial again this year. prices for domestically produced goods and services rose by 2. 1 per cent in the twelve months to july this year. higher capacity utilisation is providing the basis for higher margins in some industries. service prices, which showed little rise last year, have increased again this year. in many industries, including the airline industry, where price competition is strong, low profitability has led to an increase in prices. high oil prices have also resulted in price increases, for example in the transport industry. on the basis of the pay increases agreed upon in this year ’ s wage settlement, combined with the estimates for wage drift and wage carry - over, annual wage growth is projected at around 3½ per cent this year. lower - than - projected wage growth may be related to the fact that there were few signs of improvement in labour market conditions prior to this year ’ s wage settlement. lower - than - projected consumer price inflation last year may also have contributed to restraining wage demands this year. low wage growth will contribute to dampening the rise in prices for domestically produced goods and services. information from norges bank ’ s regional network is important for norges bank ’ s analysis of the norwegian economy. information about the state of the norwegian economy is available earlier than information provided by official statistics, and it is informative to have closer contact with the labour market and business and industry. the situation in region north, as in the rest of the country, is favourable. in the may round of interviews, all sectors in the region reported continued growth. expectations concerning the next six months indicate accelerating growth for domestically oriented industry and continued solid growth for the export industry. higher

of the next inflation report on 2 november. at the monetary policy meeting of 30 june, the sight deposit rate was increased by ¼ percentage point to 2 per cent. at the monetary policy meeting of 11 august, the executive board stated that new information since the previous monetary policy meeting does not suggest that we should deviate from the interest rate path envisaged in the june inflation report. monetary policy easing through 2003 and into 2004 has resulted in low real interest rates. short - term real interest rates may now be considerably lower than the level that implies long - term balance in the economy – the neutral real interest rate. a low real interest rate, and expectations of a continued low real interest rate, will contribute to stimulating activity even after the effects of the interest rate fall unwind. calculations may, on an uncertain basis, indicate that the neutral real interest rate for norway lies between 2½ and 3½ %. it has probably fallen somewhat in recent years. although the projections are based on rising real interest rates, the real interest rate will be lower than the neutral rate during the entire period. the monetary policy stance is therefore expansionary. so far, the effects do not appear to be stronger than expected, but we have little experience of such low interest rates. it is uncertain how quickly prices and wages will react when growth in output and employment picks up. there is also a risk that an interest rate that is kept low for a longer period may lead to expectations of a persistently low interest rate. this may involve a risk of persistently high capacity utilisation and inflation eventually overshooting the target. household debt has increased at a faster pace than income in the last ten years. norges bank ’ s calculations indicate that the sharp rise in house prices in recent years may explain a large share of debt growth. higher house prices have a fairly long - lasting effect on household debt growth. as a result, credit growth will remain high for a fairly long period even though the rise in house prices is expected to slow. given the assumptions underlying our projections, it is likely that debt will continue to grow at a faster pace than disposable income through the entire projection period. as a result of high credit growth, the household debt burden has increased over the past year. the debt burden is currently record high. due to unusually low interest rates, the interest burden is, nevertheless, relatively low. a normalisation of interest rates will increase households ’ net interest expenses, but according to the projections