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mpc: 7 occurred. The current downward pressure on margins might also be leading to an increase in thecorporate sector's financial deficit. Forward-looking price indicators of output price pressures ­such as the CBI Industrial Trends survey ­ were still negative. 24 The fall in RPIX inflation to 2.1% in January was also associated with a further fall in HICPinflation to 0.8%, the lowest since the series began and the lowest among all 15 EU countries. Alarge part of the widening of the wedge between the two series could be explained by differingtreatments of housing and of car prices. 25 The CBI Distributive Trades survey balance of prices had recently recorded its lowest levelsince the survey question began. However, the latest BRC shop price data showed a slight increasein February. Retail goods price inflation continued to fall and was now zero, and there had been afurther increase in the rate of decline in the retail sales deflator in January. It was possible that thestrong rise in retail sales volumes in January was related to greater discounting. By contrast, therate of increase of retail services prices had increased to 4.2% in January from 3.9% in December. 26 There was anecdotal evidence that some companies were able to offset some of the rise in inputprices by savings made through the use of e-commerce. The recent developments to promote easierand cheaper household access to the Internet might, in the view of some members, lead to quickerand more significant effects from e-commerce than thought likely a month ago. But it was notedthat in the US, where there was already low cost access to the Internet by households, the share ofretail sales conducted over the Internet was currently only around 0.6%.

The world economy

27 Prospects for activity in the euro area seemed to be improving, and the latest indicators alsopointed to slightly higher inflation. But the picture had not changed significantly over the pastmonth. If activity were to strengthen more quickly that might underpin an appreciation of the eurofrom its current level. 28 The latest US data had again been surprisingly strong. Chairman Greenspan's recentHumphrey-Hawkins testimony, together with the latest data, suggested that there was more concernabout the balance of demand relative to potential supply. If this signalled either an earlier and/or alarger move in interest rates than previously expected, then it might increase the chances of agradual slowing of activity growth. But there were no signs that the testimony had changed marketexpectations of where US interest rates would go, either in the near-term or further out. It waspossible that a further month of strong data had heightened the risks of a bigger change in financialmarket expectations at some point.