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MINUTES OF THE MONETARY POLICY COMMITTEE MEETINGHELD ON 4-5 OCTOBER 2000

1 Before turning to its immediate policy decision, the Committee discussed prices and costs; the world economy; money, credit and asset prices; demand and output; and the labour market.

Prices and costs

2 RPIX inflation had fallen to 1.9% in August, largely reflecting falls in the contribution of petrol prices but also a fall in seasonal food prices: by contrast with recent years, such prices had risen in July but fallen back in August. The near-term outlook for petrol prices and for petrol retailers' margins suggested a rather lower path for inflation over the next few months than had been expected at the time of the projections made for the August Inflation Report. Were margins to be restored, and the normal relationship between oil prices and petrol prices to apply, the recent fall in RPIX inflation might be reversed. But the timing of any such restoration of margins was unclear. The latest ONS advance estimate of RPIX inflation, which was again available for the Committee's meeting, suggested that August's fall had been reversed, although no information was yet available on what accounted for this. 3 The range of measures of domestically generated inflation available to the Committee were for the first time all at or below the inflation target of 2.5%: RPIX inflation excluding import prices stood at 2.5%; the GDP deflator excluding export prices at 1.9%; and the growth of unit labour costs, adjusted for trend and using actual labour productivity growth, stood at 2.2% and 1.7% respectively - though both reflected lower bonuses, which might not persist. Contrary to expectations at the time of the previous meeting, the GDP deflator had not been revised upwards. 4 There were some indications however that inflation expectations had increased, notably in the results of the most recent Basix surveys of the general public and of trades unions whose expectations of inflation had increased by 30-40 basis points since the second quarter. Looking twelve months ahead, inflation expectations of the general public (which had always remained well above the Government's target of 2.5%) now stood at 4.2% and those of trades unions at