After a long period of high housing investment and rising prices, activity in the housing market now appears to be slowing. Seasonally adjusted, house prices have fallen for four consecutive months. In recent years, house price inflation has been accompanied by strong growth in household debt. Credit growth remains high. Higher interest rates and falling house prices may lead to slower consumption growth and a higher saving ratio ahead. There are large regional differences in house price developments, but the trend has been the same since year-end 2006. House price inflation is decelerating in all regions, with a 12month decline in house prices in Hedmark and Oppland and a rate close to zero in Trøndelag. The strong rise in house prices has been accompanied by an increase in turnover up to the summer of this year. The stock of homes for sale has varied somewhat in recent years, but since summer 2006 there has been a sharp increase. This may explain some of the decline in house prices in recent months. The present economic expansion differs from previous upturns in that inflation has remained low so far despite strong growth and increasing capacity utilisation. There are several reasons for this. First, low import prices and high prices for our commodity exports have improved Norway’s terms of trade appreciably. Prices for oil and gas, freight, fish, industrial commodities and engineering products have increased considerably.
Meanwhile inflation on our inflation target measure has also averaged some 2¾% over the past seven or eight years. Helped by the dampening effect on UK inflation of the weakness of the euro against sterling, we have been below the 2½% target now for the past year and a half, and currently - on the standard HICP measure - we have the lowest rate of inflation in Europe at around 1%. Our problem in the UK is the imbalance within the overall economy between those sectors that are competing with producers in the Eurozone, who are under considerable pressure, and the rest of the economy, which is doing relatively well. Believe me, we are very conscious of the desirability of BIS Review 92/2000  2  exchange rate stability with our partners in the single market - even though we recognise that membership of the euro provides only nominal, rather than real, exchange rate certainty, and is, of course, limited to the Eurozone. Why then do we hesitate? The answer - in terms of the economics of the euro - it seems to me - and here I differ from Jean-Claude - is quite straightforward - not a bit paradoxical or bizarre! It is because to join the euro we would have to live with the single monetary policy. It may be that in time we could expect to do so relatively comfortably.