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mpc: 6 Unemployment had fallen again, but on the LFS measure had remained at 5.9%, with some of the rise in employment reflecting, in an accounting sense, a reduction in the numbers of those previously inactive who wanted a job. The Bank's regional Agents continued to report that skills shortages had ­ at least in some areas ­ increased further but evidence the previous month from both the CBI Industrial Trends survey and the recently introduced CBI/Deloitte Services survey had suggested that skilled labour shortages were still below historical averages. Figures for turnover in the labour market, constructed from P45 job separation data, suggested that job creation might be increasing in gross terms. A weighted index of employment in manufacturing, services and construction based on data from the Chartered Institute of Purchasing and Supply (CIPS) suggested continuing, but rather modest, growth in employment in December, in line with other surveys, such as that by the Recruitment and Employment Confederation. 22 The Committee agreed that the labour market remained tight, and that in underlying terms earnings growth was becoming uncomfortably high, particularly if productivity growth did not pick up further. This strength might be exaggerated by erratic factors (such as unusually large one-off bonuses) in the coming months, part of which might be millennium-related.

Prices and costs

23 Despite the path of labour costs and oil and other commodity prices, retail price inflation remained subdued, with RPIX growing at 2.2% in November, below the 2½% target for the eighth month in succession. The strength of the exchange rate was one possible cause; another was the impact of competition (including via the Internet) which might act to restrain prices. Such `e-tailing' was now being talked about as increasingly important not just for goods such as books and CDs, but was also seen as likely to become more important for other sectors such as electrical equipment and cars. By shortening the supply chain e-tailing might drive down costs for consumers who bypassed the distributors, and depress margins for the more traditional retailers and other intermediaries. An overall reduction in distribution costs through greater business-to-business e-commerce might show up as higher productivity in coming years. Alternatively, the effects of such competition might prove either to be transitory or merely to redistribute profits between retailers; and reports of squeezes on margins at retailers might suggest that some of these adjustments had already occurred. 24 The Committee noted that the inflation expectations of the general public, as measured in the latest Barclays BASIX survey, had increased in Q4, the first increase since 1998 Q3. However, since