The figure we watch most closely is Core Inflation, which excludes the costs of accommodation and private road transport. We were concerned when Core Inflation came in at 3.1% in the first quarter of this year. This reflected high commodity prices and the pass-through of strong wage growth in 2011. In the second quarter, Core Inflation moderated to 2.7%. It is likely to ease further and approach 2% by the end of the year. This is not far from the historical average of 1.7%. There are several factors driving moderation in Core Inflation during the course of the year. First, oil prices. Global oil prices were at $ per barrel in the first quarter of the year. They are now around $ For the rest of the year, they should remain in the $ range on average, barring deterioration in the geo-political situation in Middle East. The easing of global oil prices is already passing through to prices of domestic oil-related items. Let me give a couple of examples. Electricity tariffs for households came down by 2.5% in July, the first reduction this year. Likewise, petrol pump prices have fallen for three consecutive months, by a cumulative 9% from March. Going into the second half of the year, domestic oil-related prices are expected to keep largely stable. Second, food prices. Global food commodity prices, as measured by the UN FAO Food Price Index, were 5.4% lower in June compared to beginning of the year.
The strategy is now published as soon as it is adopted and prior to the relevant strategy period. The interest rate affects the economy with a lag The objective of monetary policy is low and stable inflation. The instrument is the interest rate. The interest rates influences inflation with a lag and with varying intensity. As interest rates fall, household and local government consumption and investment will tend to accelerate. Higher demand leads to higher output and employment. Wage growth may pick up. Higher wage growth combined with higher profit margins will result in higher inflation. Lower interest rates will normally lead to a depreciation of the krone. Imported goods will then become more expensive and inflation will accelerate. Expectations play a key role in price and wage formation, and they are influenced by the interest rate. Expectations concerning future inflation and economic stability have considerable impact, not least in the foreign exchange market. More stable inflation Current inflation is low, but our recent history shows that without a nominal anchor inflation becomes high and variable with substantial effects on output and employment. In the 1970s and 1980s, average annual inflation in Norway was over eight per cent. The fixed exchange rate regime, which was introduced in 1986, reinstated monetary policy as an instrument of economic policy in Norway and laid the foundation for lower inflation and more stable economic developments. Like other small, open commodity economies, Norway also experienced that it was not possible to maintain a stable exchange rate as a nominal anchor.