Looking further out, price inflation is projected to drift down further to a level notably below wage inflation. Chart 4 Policy rate raised from a very low level  The policy rate was cut to zero during the pandemic in order to cushion the downturn in the Norwegian economy. When we saw that economic conditions were normalising, we embarked on a gradual normalisation of the policy rate. But when the labour market tightened and the inflation outlook indicated that inflation might run above target for some time, it was appropriate to raise the policy rate faster in order to bring down inflation. Monetary policy is starting to have a tightening effect on the Norwegian economy. We do not know with certainty what the peak policy rate will be, but we believe we are approaching that level. This may imply a more gradual approach to policy rate setting ahead. Chart 5 A somewhat faster rate rise Our projections are based on a rise in the policy rate to around 3 percent in the course of winter. With this path for the policy rate, the interest rate on housing loans may move up to between 4 and 4½ percent. The reason the rate path is little changed since June, despite far higher-than-projected inflation, is that we are now seeing clear signs of a slowdown in the economy. Easing economic pressures will contribute to curbing inflation further out.
Inflation in many countries is the highest seen in decades, and central banks in many trading partner countries have responded by raising their policy rates substantially over a short time. In Norway, inflation is markedly above our 2 percent target. Twelve-month consumer price inflation was 6.5 percent in August, far higher than we expected before summer. Prices for electricity and other energy products have risen to historically high levels. But prices for a range of other goods and services are also rising faster than normal. The consumer price index adjusted for tax changes and excluding energy products - the CPI-ATE - was 4.7 percent  higher in August this year than one year earlier. Prices for both imported goods and domestically produced goods and services are rising at a fast pace. We project that inflation will remain higher for longer than envisaged in June. The tight labour market has contributed to pushing up wage growth. There are signs of higher electricity prices ahead than anticipated earlier, and we expect firms to pass on some of the cost increase to selling prices. We also believe it will take a little longer for imported goods inflation to come down to a more normal level. The Committee assesses that there is a need for a higher policy rate to bring inflation down towards the target. A higher policy rate will pull down demand for both labour and goods and services, which will have a dampening effect on price and wage inflation.