Perhaps one of the stumbling blocks has been the choice of wage settlements at industry level and the large wage increases for employees outside the two largest employer/employee organisations (NHO and LO). The high wage growth awarded to groups whose wages are determined through individual agreements indicates that the labour market has been tight. The rise in salaries for white-collar workers and managers may also reflect weak cost control in enterprises and organisations following a long period of expansion. For a long time, a stable exchange rate and labour costs among our trading partners formed an anchor for wage determination. Since 1998, however, the rise in labour costs in Norway has been around 2 percentage points higher than that of our trading partners. High wage growth, combined with the global downturn and a strong krone, is having a severe impact on manufacturing. It is the combined wage growth for all groups that influences the inflation outlook. However, substantial wage increases for some groups can trigger wage spirals. Wages for salaried staff in the business sector have exhibited sharp growth. This year, it appears that wage increases will particularly be high in the public sector and in parts of the private service sector. Over time, growth in real wages must be consistent with growth in labour productivity. With an inflation target of 2½ per cent and trend growth in the economy of 2 per cent, there will be scope for annual nominal wage growth of about 4½ per cent.
Conclusion The short-term outlook for financial stability appears to be favourable. In the long term, high and rising household debt is a source of uncertainty. Admittedly, household financial wealth has also increased, but debt and wealth are unequally distributed across different household groups. Low interest rates and stable macroeconomic developments indicate that the outlook for households is favourable in the short term. In the longer term, the higher household debt burden represents a source of instability in demand and output. 6  BIS Review 39/2005