Consumer prices show monthly variations. After a period of very low inflation in 2004, inflation was on the rise through 2005. Thereafter, domestic inflation showed an unexpected drop in 2006 and is still low. So far in 2007, it has edged up, but is still fairly low. Lower electricity prices have contributed to a fall in total CPI inflation in recent months. Underlying inflation, i.e. inflation adjusted for tax changes and excluding energy products, was fairly stable for a long period and has been estimated at between 1 and 1½ per cent. The latest inflation figure indicates that underlying inflation is now in the upper end of the interval. The Norwegian economy is booming after a strong upturn since summer 2003. The upturn followed a period of slow growth from 1998 and a mild slowdown in 2002 and into 2003. Growth has been stronger than in the cyclical upturn in the mid-1990s. The growth period of recent years has been the longest unbroken growth period recorded in quarterly national accounts, which include figures back to 1978. Despite cyclical fluctuations, growth has been very high for the past 15 years. So far in the cyclical upturn, the mainland economy has grown by an average of just over 4 per cent annually. Utilisation of production capacity, labour and real capital has increased markedly since summer 2003, and capacity utilisation is now very high in most industries. There are reports of limited capacity in most industries and regions and labour shortages in almost every occupational category.
That is, the Central Bank neither intends to use exchange rates to support exports, nor does it intend to harm Turkey’s long-term trade competitiveness. The implication of the Central Bank’s stable real exchange rate policy is that the economy’s current account balance is determined by real sector developments. Here the decline in domestic demand in recent months has made its mark. As imports decreased, the foreign trade balances improved significantly. As a result of this, Turkey ended 1998 with a current account surplus of $ million. In 1999, a small current account deficit is expected, mainly due to an expected rise in domestic demand in the second half of the year. The coordination of fiscal and monetary policies has succeeded in reducing the inflation rate from 91% in 1997 to 54% in 1998. As of August 1999, the WPI-based inflation rate stood at 54% despite an unexpected change in the price of oil and a relative loosening of the fiscal stance in the first half of the year. Since Turkey has a long history of inflation, inertia has played an important role in determining inflation. Breaking down this “inflation resistance” of the economy requires a high level of commitment on the part of the political authorities. One sign of this commitment may be their performance in the area of structural reforms. There is no doubt that the more successful the realization of the reforms, the stronger will be the credibility of the program. Now let me turn to these reform issues.