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Prices and costs

14 The Bank's commodity price index had fallen in October, reflecting both the fall in oil prices anda fall in metals and food prices. However oil prices had risen again in November. Producer inputprices continued to reflect higher oil prices. At the retail level, oil prices had been reflected in higherinflation in continental Europe. But despite higher petrol prices in the UK too ­ contributing around0.5 percentage points to annual inflation in the year to October ­ inflation as measured by theharmonised consumer price index in the UK was now below the European average. This was not toosurprising given the past strengthening of sterling. 15 Retail price inflation on the targeted RPIX measure had risen to 2.2% in October. This was inline with expectations at the time of the Committee's November meeting. The latest CBIDistributive Trades survey balance for retail prices had turned negative in November, and was wellbelow its historical average, which might point to further weakness in retail prices. However, thehistorical average reflected periods of much higher inflation, so it was difficult to interpret the recentdata. Anecdotal evidence suggested wider discounting than in the past, even of some luxury brands.It was difficult to tell if the lower-than-expected outturns for some of the components of the retailprices index provided evidence of a larger-than-expected squeeze on retail margins than had beenassumed in the fan chart published in the November Inflation Report. It might simply reflect adifferent timing for the reduction in margins than had been assumed. Alternatively, it could be dueto other cost factors that had yet to be observed in the data or simply month-to-month volatility withno implications for the short-term profile of inflation. 16 The weakness of goods prices was clearly reflected in the retail sales deflator, which was basedon the same data. The CBI/Deloitte & Touche survey balance for prices of consumer services hadalso fallen recently, but this survey had only been running for a few quarters. However, the CIPSservices prices index had risen on the month. 17 The continuing pressure on retail margins did not seem to reflect weak demand, but other factorssuch as increased competition. If so, increased competition and reduction in retail margins mightspread along the supply chain. Even given the recent rise in input prices, it might be difficult formanufacturers to pass on higher costs, at least in the short term. It was possible that aggregatesupply had become more elastic for reasons other than a structural increase in competition in the UK,such as increased investment elsewhere by international companies and a corresponding increase inworld supply. More efficient and cheaper access to information about domestic and overseasproduction and prices, and associated scope for cost savings on inputs, might also have an effect onUK prices. For example, the more widespread use of the Internet might affect UK productivitygrowth and pricing behaviour. There was little evidence that this was, as yet, having a big effect,