Norges Bank’s estimates, which are based on the assumption that interest rates in Norway will increase gradually,1 show that the rise in house prices will slow until 2008 and then stabilise. As the chart illustrates, there is considerable uncertainty associated with such estimates and we may also experience that prices fall. Household wealth In recent years, higher house prices have resulted in increased housing wealth. There is considerable uncertainty associated with estimates for housing wealth, but a conservative estimate indicates that housing wealth is 11 per cent higher than household financial assets and more than 40 per cent higher than household debt. Household gross financial assets have also increased more than debt in recent years (measured in NOK). This financial buffer reduces some of the concern related to debt growth. Nonetheless, developments in saving are uncertain. Credit market statistics may indicate that saving has declined considerably and is now fairly low after adjusting for the fact that owners are ploughing huge profits back into their companies as equity capital. The national accounts present a picture of higher saving. Total debt is unevenly distributed Developments in assets and debt are, naturally, unevenly distributed among different groups of households. Compared with the 1980s, the debt burden has increased in low- and middle-income households (deciles 1-6), often younger households in the start-up phase. This partly reflects changes in the tax system. Before the tax reform in 1992, extensive borrowing was very profitable for individuals with high income.
International price trends, where, for instance, oil prices are an important factor, affect domestic inflation by way of imports. An assessment of international resource utilisation can provide an indication, for instance, of how international prices may develop. The development in the value of the krona is important in the assessment of inflation. A change in the exchange rate has a direct effect on inflation in that the price of imported goods and services is affected, and also an indirect effect via aggregate demand. If the value of the krona changes in relation to other important trading currencies, this affects the competitiveness of Swedish goods and services and thereby demand and resource utilisation. Inflation expectations among households and companies can also affect the price-setting and wage formation processes and thereby inflation. One purpose of a clear inflation target and a monetary policy governed by such a target is to firmly establish the inflation target with the general public. At the same time, one should remember that the Riksbank is forced to take into account many other factors that influence price trends. These are often non-recurring factors, such as supply shocks in various forms, which are often difficult to predict. But above all it can be difficult to use monetary policy to prevent them having an impact on inflation. Monetary policy has an impact with a time lag, and it does not always reach the source of such a price rise.