the period to summer. firms supplying goods and services to the petroleum sector are still prospering owing to strong investment growth, while the construction industry expects a further decline. activity in the retail trade sector is set to edge down a little ahead, but more retail firms now report that prospects have improved. given the wide differences across industries, the outlook for the norwegian economy is uncertain. among other things, it is uncertain to what extent weak activity in the construction industry will affect other sectors. it is also uncertain how overall wage growth will be affected by the large differences in profitability both within manufacturing and among different sectors. over the past few years, the labour market has become less tight. network enterprises report that recruitment difficulties have eased. at the same time, employment is still high. over the past year, the number of employed has increased by close to 20 000. registered unemployment remains low and has been a little lower than expected in december. chart : inflation has come down abroad international inflation has declined markedly since peaking in 2022, but the decline has stalled a bit in recent months. goods inflation has fallen most, while services inflation is still high in many countries. central banks in our main trading partner countries have held policy rates steady in recent months, and the market now expects the interest rate loosening cycle to begin this summer. the krone strengthened after the monetary policy meeting in december and has been stronger than projected earlier, likely reflecting a larger rise in norwegian market interest rates than trading partner interest rates. we do not have a policy target for the krone exchange rate, but we are concerned with the krone exchange rate because it affects the outlook for the norwegian economy. over the past year and a half, the krone has lost considerable value. a weaker krone means higher prices for imported goods. the past krone depreciation will continue to contribute to keeping inflation elevated ahead. chart : wage growth is high it may take time for inflation to return to target also due to other factors. labour costs have shown a substantial increase in recent years. combined with higher intermediate goods prices, norwegian firms are facing high cost inflation. strong demand has made it possible to pass on higher costs to prices, and we see that the rise in labour costs has increasingly contributed to the rise in prices. last year, wage growth reached 5. 2 percent, or the highest rate recorded in 15 years. even so, wage inflation was lower than price inflation. wage growth is expected to be high this year too

extent to which our communication actually influences interest rate expectations. forward interest rates derived from yields at various maturities will in the absence of term premia and other risk premia normally reflect the market ’ s short - term interest rate expectations. 1 when inflation report 3 / 06 was published in the beginning of november last year, the forward interest rate was on a par with our forecast for the next six months, but considerably lower thereafter. it is now almost three months since the previous inflation report was published. since that time forward rates have increased and approached norges bank ’ s interest rate path. forward rates somewhat further out are still lower than our forecast. the reason may be that market participants have a different perception of the interest rate path that is necessary to stabilise inflation at target and to achieve stable developments in output and employment. alternatively, the market may have the same short - term interest rate expectations as norges bank, but because of extraordinary conditions long - term bond prices are being pushed up and, consequently, long - term bond yields are being pushed down. forward interest rates - often referred to as implied interest rates - are calculated so that a short - term bond, when rolled over and reinvested at the implied interest rates, generates the same yield as a long - term bond. for example, if we observe today ’ s one - and two - year interest rates ( ‘ short - term ’ and ‘ long - term ’ interest rate respectively ), the implied forward interest rate one year ahead will be expressed by the equation, where is the two - year interest rate, is the one - year interest rate and is the implied one - year rate one year ahead. the expectations hypothesis holds that the implied interest rate is equal to the market ’ s interest rate expectations and the expected return from rolling over short - term bonds is equal to the return on a long - term bond. however, if term premia exist, the expected return from rolling over shortterm bonds is different from the return on a long - term bond. if the term premium is positive, forward interest rates will overestimate expected future short - term interest rates, while they will be underestimated if the term premia are negative. long - term bond yields have been at historically low levels in recent years. from lying in a broad range around 10 per cent at the end of the 1980s, they have fallen to around 4 per cent in the past few years. developments in nominal interest rates must be seen in