Consumer price inflation in 2000 must be seen in the light of the surge in oil prices and increase in indirect taxes this year. As the ripple effects of the increase in oil prices fade, price inflation is expected to decline.

The strong growth in demand over the last year has contributed to continued strong pressures in the labour market and continued high labour costs in enterprises. The interest rate increases in recent months will gradually contribute to reducing price and cost inflation. This spring’s two-year wage settlement points to a growth in labour costs of 5 per cent in 2000 and 4½ per cent in 2001. Wage growth is estimated at 4 per cent in 2002, which is somewhat lower than in the June Inflation Report.

Mainland GDP is projected to expand by 2¼ per cent in 2000 and 1¼ per cent in both 2001 and 2002. Labour force participation rates are high, and the potential for further growth in employment is limited. This will contribute to curbing output growth the next few years. The interest rate increases that have been implemented and continued contraction in petroleum investment will moderate growth in demand. The estimates for growth in private consumption and mainland business fixed investment have been revised downwards for 2001 and 2002.