Norges Bank projects a gradual decline in price inflation
In the March 2001 Inflation Report, Norges Bank projects consumer price inflation at 3 per cent in 2001. At the beginning of March, the money market factored in expectations of a decline in short-term rates this year and next. Assuming a decline in interest rates in line with these expectations, price inflation is projected at 2½ per cent in 2002 and 2¼ per cent in 2003. If interest rates instead remain unchanged at the current level ahead, price inflation may be about 2 per cent from the end of 2002. The projections for 2002 and 2003 may be regarded as estimates for underlying price inflation. The projection for 2002 excludes the temporary effects on price inflation of a decrease in indirect taxes from July 2001.
The outlook for the real economy is broadly in line with the scenario presented in the previous inflation report. Norges Bank expects the Norwegian economy to expand at a relatively slow pace in the first half of this year, followed by a pick-up in growth in the final half of the year. Growth in mainland GDP is projected at 1¼ per cent in 2001. If interest rates fall in line with market expectations, mainland GDP growth is estimated at 1¾ per cent in 2002 and 2 per cent in 2003. If interest rates remain unchanged at the current level ahead, mainland GDP growth may be around 1½ per cent the next two years.
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