Changes in these prices provide little information about inflationary pressures in the economy. Therefore, some central banks focus on an underlying measure of inflation. This may be the consumer price index excluding prices that fluctuate most, or measures such as the trimmed average or the weighted median. While the purchase and sale of a dwelling is an investment, the advantage we derive from using the dwelling – shelter services – is part of consumption. Therefore, the price of shelter services should be included in the consumer price index. However, this is a price that cannot be observed and is difficult to measure. Consequently, some central banks completely disregard shelter services. New Zealand uses an index for construction costs, while Iceland includes the market value of resale homes. As a rule, the price of shelter services will increase when the interest rate rises. All central banks disregard the direct effect of interest rates on the price of shelter services. This is also the case at Norges Bank. In very open economies, inflation may fluctuate somewhat without prompting fluctuations in domestic output and employment or leading to changes in inflation in the medium term. In such economies, it may be appropriate therefore to accept somewhat wider fluctuations in inflation. Which prices to include in the price index is a topic of discussion.
The disturbances caused by the COVID-19 pandemic will inevitably delay many streamlining and integration measures, however. Nevertheless, merging the tasks of the Central Bank and the Financial Supervisory Authority into a single institution better enables us to face shocks like the current one and rise quickly and decisively from the downturn that lies ahead. I am convinced that, under these circumstances, the incontrovertible mathematical formula – that 1+1=2 – does not apply. The strength of the two institutions unified will be much greater than the sum of its parts. The new Central Bank is an institution that dares to act, can act, and will act. Although a number of policy actions have been taken in recent weeks, we have not emptied our toolbox – far from it. We have a number of other economic policy measures available and will use them if and when the need arises. We will do what is needed to face down the deep but brief economic shock currently threatening our country. Honoured guests: We thank you for listening. 4/4  BIS central bankers' speeches