With interest rate developments as outlined above, core inflation is projected to increase from about 1¼ per cent today to about 2 per cent at the end of 2007. There are prospects of a further increase in inflation, with inflation projected to be close to the target of 2.5 per cent three years ahead. The output gap is expected to increase over the next two years, but will peak at a fairly moderate level as gradual increases in the interest rate dampen demand growth. 4  BIS Review 30/2006  On the basis of the analysis in the Inflation Reports, Norges Bank’s Executive Board assesses the consequences for future interest rate development and adopts a monetary policy strategy for the period to the next Report. Interest-rate setting since last summer has been oriented towards a gradual increase in the interest rate – in small, not too frequent steps – towards a more normal level. Based on Norges Bank’s assessment of the driving forces in the economy, this strategy appears robust. Output growth is strong and the labour market is becoming tighter more quickly than expected. Higher growth in the economy may in isolation suggest a faster increase in the interest rate ahead. This would reduce the risk of bottlenecks in the economy, with rising cost inflation and continued debt build-up. On the other hand, the objective of bringing inflation up towards the target and anchoring inflation expectations argues for restraint in the upward movement of interest rates.
Through negotiations in the WTO, earlier on the GATT, agreements have been reached on removal of trade barriers, dismantling of tariff barriers, removal of subsidies, introduction of anti-dumping measures, and agreements have been entered into for textiles, agricultural products and other goods and services. Today, almost all countries participate as members or observers in these negotiations and the issues are far-ranging. Political changes in many regions have amplified the tendency of increased globalization. Over the past few decades, China has changed course and is now a member of the WTO. Its share of total exports is growing rapidly. The countries within the Commonwealth of Independent States (CIS) have increased their exports markedly since the early 1990s. India is at the starting-line. Many of these countries have large labour forces that offer their services at very low wages, and these labour resources are available to companies that compete on world markets. The working-age population in rural China for instance is nearly the same as that of the entire OECD area. Many are seeking new opportunities and work in the urban areas. Low labour costs and more efficient transport and communication attract labour-intensive production. Production of goods and services is being transferred from Norway and other high-cost countries to amongst others the Baltic countries, Poland, China, India or other emerging economies. There are many examples showing that competition in selling highly skilled services is also intensifying. Norwegians are offered myopia surgery in Turkey.