There is considerable uncertainty surrounding the calculation of the output gap, and there is no simple relationship between developments in the output gap and developments in inflation. It cannot therefore be claimed with any great certainty that it is possible to identify one particular interest rate forecast that provides the indisputably “best” trade-off in monetary policy. More often than not, there will be a number of possible interest rate paths that might be said to provide a reasonable balance, in view of the uncertainty involved. Norges Bank’s treatment of the interest rate in forecasting has changed over time. In 1999 and 2000, forecasting was based on the assumption that the interest rate would develop in line with market expectations as indicated by forward interest rates. In 2001 and 2002, the Bank based its forecasting on the assumption that the interest rate would remain constant to the end of the projection period. The constant level of the interest rate was calculated on the basis of historical averages, although the historical period on which the calculations were based could vary from one period to the next. On some occasions, the interest rate assumption reflected the average for the interest rate over the previous three months, on other occasions, the average for the previous month. From mid-2003, the interest rate assumption was again linked to market expectations, and in autumn 2005 we published our own interest rate forecast.
I would like to note that like other central banks, we also have considerations regarding the temporary nature of price movements resulting from supply shocks. While maintaining the tight monetary policy focusing on demand factors and their consistency with our medium-term inflation target, we will be giving more weight to decomposing the effects of supply shocks in the upcoming period. Before I finish my evaluations on inflation, I would like to make a few notes on the pricing behavior. Recently, price increases in certain products have exceeded their historical averages. When we look into the products that made the highest contribution to inflation, we observe that in August, annual price increases in those products exceeded the average price increases of the last 10 years by more than three to four times. Although one reason for this situation, as I mentioned before, is developments such as the pandemic-led increases in commodity prices and supply constraints, these factors alone may not fully explain the price increases in some products. However, we consider that such pricing behavior will converge to its pre-pandemic level as the economic and social normalization gains pace in the upcoming period. Lastly, when we look into exchange rate developments, we see that the improvement in our reserves is consistent with our forecasts. Reserves increased by USD 30 billion from USD 85-90 billion to USD 115-120 billion. Swap agreements, rediscount credits, gold ore purchases and reserve requirement steps have been the primary factors contributing to reserves.