and expectations that oil prices will remain high, investment in the petroleum sector may reach record levels this year. the investment intentions survey for the petroleum sector points to very high growth. in our projections, we have assumed that fiscal policy will have a cyclically neutral impact on the economy next year. for 2007, our projections are based on the assumption that fiscal policy will be consistent with the fiscal rule, while fiscal policy for 2008 will provide some stimulus to total demand and output, although somewhat less than a mechanical application of the fiscal rule would imply. high oil prices will particularly be reflected in a sharp rise in the petroleum fund ’ s total capital. after a period of very low consumer price inflation, there are prospects that inflation will again rise at a faster pace. nevertheless, there are considerable differences in the rise in prices across goods and services. on the one hand, norway is still benefiting from the growing liberalisation of world trade. imports from countries where the price level is lower than in norway are increasing, resulting in a fall in prices for a number of consumer goods. on the other hand, higher production in large countries such as china and india has led to higher prices for energy products. as a result, the overall rise in consumer prices has edged up both at home and abroad. the projections in the inflation report are based on an interest rate path that in the executive board ’ s assessment provides a reasonable balance between the objectives of monetary policy. previously, we based our analysis on various technical assumptions concerning future interest rates. one such assumption was market interest rate expectations. as from inflation report 3 / 05, we now base our projections on an interest rate path that we consider reasonable. this gives norges bank more active ownership of the projections that are presented and of the uncertainty we believe surrounds these projections. the arguments favouring a very low interest rate in norway are to some extent less relevant. the outlook and analyses suggest a gradual increase in the interest rate towards a more normal level, but we expect the adjustment to occur in small, not too frequent steps. output growth is high and may in isolation suggest a more rapid increase in the interest rate ahead. this would reduce the risk of bottlenecks in the economy with rising cost inflation and continued debt build - up. on the other hand, raising the interest rate more rapidly would increase the risk of a stronger krone, which could prevent inflation from reaching the target of 2. 5 per cent. the projections indicate that the interest rate will rise by about

whose economies have enjoyed rapid growth. second, rises in oil prices tend to cause income transfer to oil - producing countries through deterioration in the terms of trade of non - oil producing countries, thereby boosting the purchasing power of the former. the critical point in this regard is how the increased income is spent. judging from the recent rise in japanese exports to oil - producing countries and other evidence, it seems that a mechanism of income reflow from oil - producing countries to non - oil producing countries is in fact operating. in addition, it should be stressed that the recent crude oil hike has not led to a rise in a broad range of categories in consumer prices nor a heightening of inflationary expectations in major countries, and as a result, there has been no need for a rapid tightening of monetary policy. this can be explained by factors such as the increased credibility of monetary policy in countries pursuing price stability, and also the expansion of supply of low - priced products flowing into the global market as a result of entry of emerging countries. long - term interest rates remain at low levels in major economies as a result of stable prices and accommodative monetary policy. the pervasive low interest rate environment has laid the foundation of world economic growth, as seen, for example, in the u. s. economy, where low mortgage interest rates have boosted housing prices and this in turn has been supporting an increase in household expenditure. if crude oil prices remain high, we should keep close watch for any sign of a rise in inflation expectations or rapid tightening of monetary policy, leading to deceleration in world economic growth. in this context, we should also assess the negative effects of the hurricane which hit the united states late last month and has caused devastating damage to the oil production facilities and refineries in the area. based on the above economic outlook, i will elaborate on price developments. the corporate goods price index continues to rise, mainly reflecting the rise in crude oil prices, and this uptrend is expected to continue for the time being. with regard to the consumer price index ( cpi ), the change in the core cpi, which excludes fresh food, is hovering slightly below zero percent on a year - on - year basis. it is likely to become zero or slightly higher toward the end of the year since the negative contribution of rice prices and the reduction in electricity and telephone charges is expected to dissipate. the year - on - year rate of change in the cpi is expected