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mpc: 6 expected to remain at 3% and that the mean pay settlement was expected to edge up only modestly from 3.1% to 3.4%. 19 One possible explanation for the benign earnings outturns, for which there was anecdotal evidence, was that companies were not bidding up wages to attract workers, on the grounds that they did not believe that they could pass on increased costs to their customers and so could not profitably increase output; instead they were choosing not to expand output to satisfy potential demand. That might be explained by intensified competition in product markets and a more stable monetary environment. If this were the explanation, it could not be guaranteed to persist. In the view of some members, it represented suppressed inflation. 20 An alternative possible explanation also placed weight on intensified competition in product markets, but emphasised that it might have reduced the rate of unemployment consistent with stable inflation. More generally, it was possible that the sustainable rate of unemployment had, for a variety of reasons, improved by more than the Committee had already allowed for in its recent forecasts. A further adjustment had been made by the Committee in the latest Inflation Report projections.

Prices and costs

21 RPIX inflation had risen by 0.3 percentage points to 2.2% in September. This was not accounted for entirely by petrol prices, posing the question as to whether the increase provided news about price pressures or was simply noise. However, the provisional estimate for October, which was available to the Committee for its Thursday session, was for it to drop back. Taken at face value, this did not suggest that retail price inflation was increasing. It was likely, though, that RPIX inflation would be more volatile than usual during the next few months, reflecting commodity price changes and the unusual weather conditions. 22 At its October meeting the Committee had noted the rise in inflation expectations between the second and third quarters suggested by the Basix survey of the general public and trade unions. More recent data from the series would not be available until the Committee's January meeting. But it was noted that the GfK survey measure of consumer confidence, which contained some information on inflation expectations, had fallen back in October, lending support to the view that the sharp rise in surveyed inflation expectations in September was a temporary effect of the fuel crisis.