Norges Bank projects consumer price inflation at 2 ½ per cent in 1997 and 2 per cent in 1998. The projections for price inflation for 1997 have been revised downwards compared with the March Inflation Report, primarily reflecting lower-than-expected electricity prices. Wage growth is also forecast to be slightly lower, at 4 per cent in 1997 and 4¼ per cent in 1998.

The underlying measure of price inflation, which excludes changes in indirect taxes and electricity prices, still seems to be rising. After increasing by 1½ per cent in 1996, the underlying rise in consumer prices is projected at around 2 per cent in 1997 and 2¼ per cent in 1998.

Norges Bank's projections underline continued sharp growth in demand for Norwegian-produced goods. Employment growth is estimated at 2¼ per cent in 1997 and 1½ per cent in 1998, ie a rise of 200 000 in the number employed in the period between 1993 and 1998. Several indicators point to a growing shortage of labour and inputs in the business and public sector.

Commenting on the situation in the Norwegian economy, Central Bank Governor Kjell Storvik says that the pressure in the economy now seems to be rising. In spite of continued moderate price and wage inflation, growing pressures constitute a risk of higher inflation in the somewhat longer term.

"As usual there is uncertainty attached to future developments in the Norwegian economy. The uncertainty goes both ways, but there are solid grounds for underlining the risk of growing imbalances and rising price inflation", says the Governor of Norges Bank.

Mainland GDP growth is projected at 3¼ per cent in 1997 and 3 per cent next year, which implies a further increase in capacity utilisation in the business sector.