In the last rounds of interviews with our regional network, an increasing number of companies reported that wage growth in 2006 will be higher than budgeted early this year. The level of unemployment that is consistent with stable real wage growth is uncertain and probably varies over time. We have assumed that increased economic integration across countries, both in the form of an increase in inward labour migration and intensified competition in product markets, may have a dampening effect on wage demands for a given level of unemployment. In the period ahead, a tight labour market is expected to result in higher real wage growth. Nevertheless, it is assumed that labour inflows will have a dampening impact on wage demands, so that real wage growth will be a little lower in the next few years than in previous periods of equally low unemployment. The upward pressure on price and wage inflation given the level of current resource utilisation, as reflected in the output gap, is estimated to be lower than in the previous expansion even though the unemployment rate is at approximately the same low level. This is due in part to high productivity growth in recent years. Growth in disposable income has been high in recent years. Lower interest expenses and relatively high real wage growth have resulted in an increase in household purchasing power. The rise in house prices may also have fuelled growth in private consumption.
In the course of 2005, office rental prices began to pick up in the largest Norwegian cities, with considerable variation within the various quality and location segments. The rise in consumer prices has also edged up since the beginning of the cyclical upturn. The year-onyear rise in the consumer price index (CPI) was 2.6 per cent in September. Energy products such as electricity and oil have put upward pressure on inflation over the past year. Electricity prices, including grid rent and taxes, were 48 per cent higher in August than one year earlier, while petrol prices were 1 per cent higher. Since the beginning of 2001, the rise in energy prices has been over 7 per cent on average. Variations in energy prices may also lead to wide monthly variations in consumer price inflation. As a result of high electricity prices, the rise in CPI inflation will remain steady though 2006. Energy prices are expected to fall in the spring of 2007, dampening the rise in CPI inflation. The rise in prices for non-energy goods has been moderate in recent years. Price impulses from imported consumer goods have been particularly weak. Their contribution to inflation has been negative virtually every year since the mid-1990s, partly reflecting increased trade, a shift in imports towards low-cost countries and a substantial improvement in distribution efficiency in Norway. Price impulses from imported consumer goods are expected to continue to exert downward pressure on inflation for some time ahead, albeit to a lesser extent than in previous years.