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If you live in the UK then you may be interested in the latest Bank of England minutes; http://www.bankofengland.co.uk/mpc/mpc0505.pdf

If you can't be bothered to read the whole thing then here's some extracts....

$this->bbcode_second_pass_quote('Bank of England', '[')b]The international economy

13 Although spot oil prices had fallen a little over the past month, they remained about 15% higher in US dollar terms than at the time of the February Inflation Report; and futures prices were on average some 20% higher. The substantial increase in oil prices over the past year was likely to have acted as a drag on output growth, even though it partly reflected current and prospective increases in global demand for oil. The high price of oil was likely to continue to dampen growth during 2005.

14 However, there were several reasons why the economic impact of the oil price rise might be less than in previous episodes. The oil price in real terms was still low relative to its previous peak in 1979-80 and the oil intensity of production had fallen, as had the share of oil and related products in consumer spending. In most industrial countries, labour markets had become more flexible and inflation expectations were better anchored, so that second-round effects on inflation were likely to be less than before; that would give monetary authorities more scope to address any adverse consequences of the oil price rise for demand. However, it was too soon to be sure about the second-round effects on wages and prices, as the first-round effects were still working their way through the supply chain.

Supply, costs and prices

28 The possibility that the more rapid than expected pickup in CPI inflation reflected, at least in part, excess demand along the supply chain could not be ruled out. Interpretation of the data was complicated by the uncertain impact on some prices of the unusually early Easter holiday. Among the goods and services for which retail prices had risen faster than expected were food, air fares and financial services. Food prices had been pushed up by poor weather overseas, particularly in Spain, so this was likely to have only a temporary effect. Air fares had probably been driven up partly by higher costs of oil, but it was not clear how much of the first-round effects of past oil price rises was still to come through the supply chain.

29 There were some other signs that oil prices had been responsible for at least part of the rise in CPI inflation. The rate of increase of prices of domestically produced output, excluding petroleum products, had been stable. However, the prices of imported goods – partly reflecting oil and commodity price increases – had accelerated. The rate of inflation for consumer services – likely overall to be less oil-intensive than goods – had been increasing steadily.

The May GDP growth and inflation projections

32 The central projection for CPI inflation, on the same assumption about the path of official rates, was for it to rise above the 2% target for a short while during the first year of the projection, falling back in the first half of 2006, and thereafter settling at close to the 2% target for the rest of the forecast period. Compared with the February Report, the central projection was higher in the short term but lower further out. The short-term profile was affected by a number of factors likely to have only a temporary effect on annual inflation, such as the first-round impact of the recent increases in the prices of oil, electricity, gas, water and sewerage services. Oil prices were assumed to fall back gradually, in line with oil futures. The marginally weaker inflation profile in the medium term reflected the slightly softer outlook for economic activity and the higher value of sterling.

The immediate policy decision

34 The outlook for UK-weighted world demand was a little weaker than at the time of the February Inflation Report, while oil spot and futures prices were significantly higher. Equity markets had fallen a little and the sterling ERI had edged higher. The main news since the February Inflation Report had been domestic: the slowdown in household spending, particularly on consumer durables, and the sharper-than-expected pickup in CPI inflation. The degree of tightness of the labour market was little changed. The pace of output growth appeared to have slackened a little, but not to the same extent as the pace of consumption growth. Judging by the sterling yield curve and market intelligence, market participants thought that a change in the repo rate at this meeting was unlikely, and that the perceived probability of one or more rate rises this year had declined since February.

35 The Committee’s May forecast, discussed above, reflected the news in the data. The policy judgement depended not only on the central projection for CPI inflation two years out, but also on the assessment of the many risks, in both the near term and the medium term. There was broad agreement that the two most important concerned the outlook for consumption and the reasons for the recent rise in CPI inflation. The forecast embodied judgements that consumption growth was likely to pick up somewhat after a soft patch, and that a substantial part of the rise in CPI inflation was due to temporary or one-off factors such as the first-round impact of the rise in the price of oil. There was a risk that consumption growth would not recover as quickly as expected. But there was also a risk that past rises in CPI inflation reflected higher demand relative to supply in the economy than embodied in the forecast or a larger impact on inflation of any given degree of excess demand. As these risks would have opposite implications for the inflation projection were they to materialise, they posed the Committee with a challenge.

36 In addition, there was the possibility that increases in retail price inflation, whether driven by an adverse supply shock or excess demand, could dislodge inflation expectations. The recent pickup in inflation had been small in a longer-term historical perspective, but the exceptionally low volatility of inflation in the past few years might have generated unrealistic expectations of the degree of inflation stability that could be achieved. However, there was little sign that inflation expectations were in danger of moving significantly away from the target in either direction, and inflation was currently close to target, so there was some scope to accommodate the first-round effects of the oil price rise.
That would avoid exacerbating the near-term downside risk to output. If the first-round price effects of the adverse supply shock from oil were followed by second-round wage and price increases, the Committee could then adjust the policy stance accordingly.

37 Although the Committee’s best collective judgement was that the risks to CPI inflation were broadly balanced, there was a range of views among members. It was not yet clear which of the two key risks set out in paragraph 35 was the more likely to crystallise. For most members of the Committee, the outlook for inflation contained in the May Inflation Report projections implied that no change in the repo rate was necessary this month.

40 The Governor invited members to vote on the proposition that the repo rate should be maintained at 4.75%. Eight members of the Committee (the Governor, Rachel Lomax, Kate Barker, Charles Bean, Marian Bell, Richard Lambert, Stephen Nickell and Paul Tucker) voted in favour. Andrew Large voted against, preferring a rise in the repo rate of 25 basis points.