In Norges Bank's Inflation Report for the third quarter the average rise in prices is projected at 1 1/4 per in 1996 and 2 1/2 per cent in 1997. According to Norges Bank, consumer price inflation may reach 3 per cent this winter as a result of recent increases in electricity prices, but is estimated to edge down in the following period. Excluding the rise in electricity prices, price inflation is projected to rise to 2 1/2 per cent towards the end of 1997.

The increase in price inflation primarily reflects a higher level of wage growth. Norges Bank estimates a rise in wage growth from 4 1/4 per cent this year to 5 per cent in 1997.

The Norwegian economy is in its fourth year of strong growth, and Norges Bank projects a rise in capacity utilisation in 1996 and 1997. Robust growth in real income and a decline in the household saving ratio will contribute to continued growth in consumption. Growth in traditional merchandise exports appears to be higher than expected. Mainland GDP growth is projected at 3 1/4 per cent in 1996 and 2 1/2 per cent in 1997.

The central bank estimates 2 3/4 per cent growth in employment this year and 1 1/2 per cent next year. Unemployment is forecast to decline to 4 1/4 per cent in 1996. Unemployment may edge down to well below 4 per cent towards the end of 1997.

Commenting on the Inflation Report, Central Bank Governor Kjell Storvik, states that fiscal tightening and a resumption of wage moderation are necessary in order to avoid rising price and wage inflation.

"Growth in the Norwegian economy is now considerably stronger than among our European trading partners, which makes it more demanding than otherwise to maintain price and wage inflation on a par with our trading partners. A further rise in demand would make this task even more difficult," says the Governor of Norges Bank.

"The risk of further pressures in the economy next year underlines the need for a tight fiscal policy stance in 1997, which is at least in line with the tightening originally called for in the budget for 1996," Mr. Storvik said.