The objective of monetary policy is low and stable inflation. The inflation target is set at 2½ per cent. The key interest rate is set on the basis of an overall assessment of the inflation outlook, normally two years ahead. Changes in the interest rate are normally made gradually. The analyses in Norges Bank’s Inflation Report, together with the Bank’s current assessment of the outlook for price and cost inflation and developments in the money market and foreign exchange market, provide a basis for decisions concerning monetary policy instruments. In the Inflation Report that is being presented today, the rise in consumer prices two years ahead, with unchanged interest rates, is estimated at 2½ per cent.

This projection is consistent with the inflation target of 2½ per cent. However, as discussed in the report, there is considerable uncertainty associated with the inflation projection.

Domestically generated inflationary impulses remain strong in Norway. Demand for labour in the sheltered sector is high. Increased strains in the labour market are exerting pressure on the traditional wage determination process. This implies a risk of higher-than-estimated wage and price inflation.

We have based our assessment of fiscal policy on the central government budget for 2002, as presented by the previous Government, and a use of petroleum revenues that is in line with the new guidelines for fiscal policy. The new Government will present its budget proposal on 9 November. This is the first budget based on the new guidelines for the use of petroleum revenues.

Uncertainty surrounding global developments is unusually high. The terrorist attacks of 11 September may have influenced behaviour and response patterns in such a way that historical experience is no longer a reliable guide. The projections in the Inflation Report are based on the assumption that growth in the global economy will pick up again through 2002. There is a clear risk, however, that the downturn in the global economy may be deeper and longer. This would lead to weaker economic developments and lower-than-estimated price inflation, also in Norway.

In the light of the balance of risks as presented in the Inflation Report, it is now Norges Bank’s assessment that the probability that inflation two years ahead will be lower than 2½ per cent is greater than the probability that it will be higher.

Starting with this issue, the Inflation Report has been given a somewhat different structure from previous reports, a structure that we think is more appropriate in relation to our new mandate for monetary policy.

A statistical annex with longer time series for reference purposes represents another new feature. As previously, the Central Bank Governor is editor of the report. The main elements of the Inflation Report are presented to and discussed by the members of the Executive Board before they are published. And, as I have already mentioned, the projections and analyses in the Inflation Report serve as an important basis for the Executive Board’s discussion and setting of interest rates.