The following information has become available since the staff report (SM/99/311) was circulated to the Executive Board on December 27, 1999. This information does not change the staff appraisal.
1. Consumer price inflation (year-on-year) was 2.8 percent in December 1999, unchanged from the previous month. Rising electricity prices contributed the most to recent price increases. Underlying inflation, which excludes changes in electricity prices and indirect taxes, was in line with previous projections, showing a year-on-year increase of 2.5 percent. In its 1999 fourth quarter inflation report, Norges Bank revised its inflation projection for 2000 upwards by ¼ percentage point to 2¼ percent, primarily in view of the Parliament’s decision to raise indirect taxes in the 2000 budget. Inflation was projected to decline to 1¾ percent in 2001.
2. Teachers and healthcare workers have reportedly been making substantial claims for this year’s wage round, above the 3½ percent recommended by the Arntsen commission for 2000. However, several labor leaders have publicly distanced themselves from these wage claims.
3. The krone exchange rate has been slightly weaker in January, averaging Nkr 8.15 per euro, compared to Nkr 8.10 per euro in December. The long-term interest rate differential vis-à-vis Germany, measured by yields on 10-year bonds, fell to about 80 basis points at the end of the third week of January, from 100 basis points in mid-December 1999.
4. In the most recent meeting of its Executive Board on January 19, Norges Bank left its key interest rates unchanged. Noting that the risk of a pronounced downturn seemed to have receded compared with earlier assessments, the Bank stated that interest rates now appeared to be at or close to the bottom of the cycle.
5. The price of North Sea oil averaged $25.65 per barrel in December 1999 and fell slightly to $24.80 per barrel on average in the first three weeks of January.