The debt burden for households with the highest income (decile 10) has fallen markedly since the banking crisis. This is partly due to changes in the tax system at the end of the 1980s which led to a reduction in tax deductions for interest expenses, especially for high-income groups, and changes in the tax system in 1992. Debt is also unevenly distributed by age. In recent years, the debt burden has increased substantially in the younger age groups. The debt burden for the age group 25-34 is approaching the level prevailing at the time of the banking crisis. The rise in the debt burden must be seen in connection with the fact that they are in the start-up phase and with the rise in house prices. The high debt burden makes these groups vulnerable in the event of an interest rate increase. III. Consumer credit  Banks’ and finance companies’ exposures to household loans depend in part on whether loans are secured. Good collateral provides a buffer against losses and is therefore advantageous for a robust financial system. Mortgage loans account for the majority of household borrowing. The share of housing loans has increased since 1996, whereas the share of other repayment loans, which may be unsecured or secured with collateral in the form of a car or boat, has declined. Other loans include construction loans, bank overdrafts, operating credit, leasing and factoring. Their share is virtually unchanged. Norges Bank’s statistics do not provide the basis for estimating the total scope of unsecured loans.
In addition, the rise in prices for domestically produced goods and services stabilised, and towards the end of 2004 there was a tendency towards a more rapid rise in prices for these goods and services. Prices for imported consumer goods fell more than expected at the beginning of 2005, while the tendency towards a more rapid rise in prices for domestically produced goods and services has persisted. So far in 2005, inflation measured by the CPI-ATE has hovered at ¾ per cent. The projections in Inflation Report 1/05, published on 16 March, are based on a gradual increase in the interest rate. This is in line with expectations among financial and foreign exchange market participants. It is assumed that the exchange rate will shadow movements in the forward exchange rate. This implies that in the years ahead the krone will remain fairly stable at approximately the current level. With a path for the interest rate and the krone exchange rate in line with the baseline scenario in Inflation Report 1/05, inflation may increase gradually from less than 1 per cent today to close to 2 per cent in mid-2006. Under these assumptions, inflation may stabilise at around 2½ per cent at the three-year horizon. Developments in line with these projections imply that the output gap will widen to about 1¼ per cent in 2006 and then gradually narrow. Developments since the March Inflation Report was published do not provide grounds for changing the perception of the main features of developments in the real economy.