Norges Bank now projects consumer price inflation at 2¾ per cent in 1998 and 3 per cent in 1999. The projection for inflation in 1998 has been adjusted upward by ½ percentage point, primarily due to higher indirect taxes.

Norges Bank expects the upturn to gather pace in 1998 and 1999. In the December Inflation Report, Norges Bank's projection for wage growth next year has been adjusted upward to 5 per cent. Wage growth in 1999 is estimated at 6 per cent. Increasing shortages of labour and continued high growth in employment will generate greater pressure in the Norwegian economy in the next two years. As a result, registered unemployment may fall to 45 000 in 1999, the lowest level seen since 1987 and lower than the average in the 1980s.

A tight labour market and high wage growth will contribute to a cyclical turnaround from the year 2000. A decline in profitability in the enterprise sector and lower capacity utilisation, combined with a fall in petroleum investment, will slow economic growth and eventually contribute to a drop in employment. Underlying inflation, which has risen steadily in the past two years, will continue on an upward trend. Consumer price inflation may reach 3½ per cent at the beginning of the next century and relatively small changes may result in even higher price inflation.

Commenting on the situation, Central Bank Governor Kjell Storvik says that the magnitude of the turnaround depends on the orientation of economic policy in the period ahead. In the current situation, a more contractionary stance would curb growth rates in the Norwegian economy and thereby contribute to moderating the turnaround. At the moment, the current economic policy will do little to prevent a cyclical turnaround in the next couple of years.

According to the Governor, as long the fiscal policy stance is more or less neutral and monetary policy is geared towards maintaining a stable krone, the social partners will bear a considerable responsibility.