The Government Petroleum Fund thus serves as a buffer against swings in the oil price, and thereby stabilises the krone exchange rate. The Norwegian economy may nevertheless be exposed to disturbances of a type that cannot be absorbed by the Petroleum Fund. In the future, fluctuations in the value of our currency will probably be more in line with the fluctuations observed in other countries. The exchange rate will vary. The increase in labour costs is important when Norges Bank’s assesses the outlook for price inflation and sets interest rates. Since 1997, labour costs have increased annually by between 5 and 7 per cent. In spite of this, consumer price inflation has been close to 2½ per cent over the past few years. The krone exchange rate has appreciated as a result of a wider interest rate differential between Norway and other countries. Combined with low growth abroad and increased trade with low-cost countries such as China, this led to a slower rise in import prices. In Norway, Voluntary Export Restraints on clothing have been removed and tariffs on clothing have been reduced considerably. In the EU and the US, a similar tendency has not been seen to the same extent. This may explain why prices for clothing have fallen in Norway relative to the EU and the US. However, there is still a long way to go before restrictions on clothing imports to Norway are entirely dismantled.
Henceforth, the real return on the Government Petroleum Fund shall be used over the central government budget. Central government petroleum revenues shall continue to be transferred to the Government Petroleum Fund and invested abroad. Monetary policy in Norway is oriented towards low and stable inflation. Since March 2001 the inflation target is set at 2½ per cent. When monetary policy is oriented towards stabilising inflation, it also contributes to stabilising aggregate demand and output. The inflation target is the nominal anchor for the Norwegian economy. Low inflation is the objective and the interest rate is the instrument. If it appears that inflation with unchanged interest rates will be higher than 2½ per cent, the interest rate will be increased. If it appears that inflation with unchanged interest rates will be lower than 2½ per cent, the interest rate will be lowered. Low and stable inflation will be a fixed feature of economic developments. This is something that the social partners, businesses, borrowers and investors in property and securities can take as a given. From 1986, changes in the exchange rate or the prospect of changes in the exchange rate had implications for interest rates. A stable krone exchange rate was the nominal anchor. In Norway, this has been reflected in wage determination because labour cost developments among trading partner countries have been an important reference. Exchange rates between major international currencies fluctuate widely. The US dollar has appreciated by more than 30 per cent since 1995.