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Chart: Policy rate kept unchanged at this meeting

The Monetary Policy and Financial Stability Committee has decided to keep the policy rate unchanged at 4.25 percent.

Norges Bank is tasked with keeping inflation close to 2 percent over time. We are also mandated to help keep employment as high as possible and to promote economic stability.

Inflation has been above target for several years, and at the monetary policy meeting in June, we expected that a somewhat tighter monetary policy stance would be needed to bring inflation down to target within a reasonable time horizon.

Inflation has slowed and been lower than projected this summer. Slower inflation is welcome news, but inflation is still too high, and it is too early to conclude that the inflation outlook has changed materially. It may thus still become necessary to raise the policy rate.

Let me say a bit more about the Committee’s assessments.

Chart: Inflation is still above target

In July, consumer price inflation was 3 percent. Excluding tax changes and energy products, inflation was 2.7 percent. Inflation thus remains markedly above target.

An important reason why inflation has remained elevated in recent years is that firms’ labour costs have risen substantially. The rapid wage growth behind us will likely continue to contribute to keeping inflation elevated ahead.

The conflict in the Middle East is creating uncertainty about the inflation outlook. Shipping traffic through the Strait of Hormuz remains limited, and oil price volatility has been substantial through summer. Oil prices have shown little change since June, while gas prices have risen somewhat. External price impulses to Norwegian imported goods overall appear to have evolved broadly as expected. The krone weakened earlier this summer but has since appreciated a little again and is now broadly in line with that assumed in June.

Chart: Unemployment has changed little through summer

Activity in the Norwegian economy appears to have evolved broadly as expected. Private consumption appears to have increased, while residential construction has remained low. House prices fell in July and are lower than expected.

Unemployment is currently neither especially high nor unusually low and has changed little since our previous meeting.

Chart: It may still become necessary to raise the policy rate

When we set the policy rate, we emphasise avoiding a stance that could restrict the economy more than needed. At the same time, the Committee places emphasis on the fact that high inflation over time can lead households and firms to begin planning for persistently high inflation. Inflation may then become stickier and harder to bring down. We judge that a restrictive monetary policy stance is still needed to bring inflation down to target within a reasonable time horizon.

The future path of the policy rate will depend on economic developments. Our mission stands firm, and we will set the policy rate so that inflation returns all the way back to the 2 percent target.