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mpc: 6 of one-off increases in earnings would tend to feed through into final prices on a smoothed basis, and it was quite unclear whether in the longer term prices reacted differently to increases in earnings stemming from higher settlements, and those reflecting greater wage drift. 21 Data collected by the Bank suggested that on a matched sample basis, settlements in January were if anything lower than a year previously. But the Bank's regional Agents had noted that this was not the case in services, and that pay pressures were building in some areas, with concern about settlements later in the year both in services and some parts of manufacturing. 22 The Committee agreed that the labour market remained tight. While it would be wrong to react to every fluctuation in the average earnings index, given the volatility of that series and the possible distortions resulting from millennium-related factors, it was likely that the starting point for earnings in the Committee's May forecast would be above that in the February Inflation Report.

Prices and costs

23 In recent months retail prices had increased by slightly more than had been expected. Part of the reason was the increase in oil prices, but now that OPEC had decided to increase production, and aimed to stabilise oil prices at around $20-$25 per barrel, the upside risks to inflation from this source had diminished. The oil price now was no higher than that incorporated into the February Inflation Report for Q1. How far earlier price increases had been passed through was difficult to determine, and it was possible that firms would base their pricing decisions on the new (lower) oil price rather than passing on all of the earlier increases. 24 The CBI Monthly Industrial Trends Survey for March showed more respondents now expecting a fall in manufacturing output prices, perhaps reflecting competitive pressures linked to the rise in sterling against the euro. By contrast, higher oil prices had led to an increase in input prices reported in the latest CIPS manufacturing survey. The Bank's regional Agents reported that service price inflation remained relatively high, but variable across sub-sectors.

The world economy

25 Prospects for world economic activity had strengthened further since the February Inflation Report, with output in the US accelerating in 1999 Q4 and activity indicators remaining