Good morning, and thank you for inviting me here today.
The primary objective of monetary policy is to maintain low and stable inflation. Today, I will discuss what drives inflation and why returning it fully to target has taken so long. Part of the explanation lies in the weight the Monetary Policy and Financial Stability Committee has given to striking an appropriate balance between reducing inflation and sustaining employment. More aggressive monetary tightening would have brought inflation down faster. But the story is multifaceted. I will highlight three factors.
- First, the global price shock that hit the economy in the aftermath of the pandemic made imports more expensive. But it also raised the prices of Norway’s exports. Higher export prices contributed to stronger wage growth, which is now sustaining inflation.
- Second, price cuts are common for goods but rare for services. The rarity of services price cuts can itself prolong disinflation.
- Third, high inflation can influence expectations of future price increases, which in turn can increase inflation persistence.
Chart: Inflation remains above target
The chart shows inflation over the past decade, measured by the consumer price index, or CPI. Our mandate is to stabilise CPI inflation close to 2 percent.