have been falling ( graph 8 ). increased competition and changes in technology are driving down the prices of many of the things we buy. this is making for a tough environment for many in the retail industry, but for consumers, lower prices are good news. 7 / 12 bis central bankers'speeches a question we are grappling with here is how much further this process has to run. it is difficult to know the answer, but our sense is that the impact of greater competition on consumer prices still has some way to go as both retailers and wholesalers adjust their business models. so this is likely to be a constraining factor on inflation for a while yet. putting all this together, we expect inflation to pick up, but to do so only gradually ( graph 9 ). by the end of our two - year forecast period, inflation is expected to reach about 2 per cent in underlying terms, and a little higher in headline terms because of planned increases in tobacco excise. underpinning this expected lift in inflation is a gradual increase in wage growth in response to the tighter labour market. 8 / 12 bis central bankers'speeches high and rising household debt the third question we have focused on over recent times is the implications of the high and rising level of household debt. the growth in household debt has been outpacing the very low growth in household incomes for a few years now. as a result, the household debt - to - income ratio has risen, although if account is taken of the increased balances held in offset accounts the rise is less pronounced ( graph 10 ). the low level of interest rates means that even though debt levels are higher, the share of household income devoted to paying mortgage interest is lower than it has been for some time. perhaps reflecting this, as well as the recent decline in the unemployment rate, aggregate indicators of household financial stress remain quite low. the central issue here is how the high levels of debt affect the stability of the economy over the medium term. our concern has not been the stability of the banking system ; the banks are strong and they are well capitalised. rather, the concern has been that as the household sector takes on ever - more debt relative to its income, the risk of medium - term problems increases. this is especially so when this debt is taken on in an unusually low - interest rate environment. 9 / 12 bis central bankers'speeches it is difficult to be precise about exactly how much this risk has increased, but our judgement has

the second half of the 1970s. on the other hand “ business services ” – including things such as accountancy, legal and numerous other services – have grown fairly steadily and now are credited with more than twice the share of gdp of manufacturing. 3 several of these sectors are being boosted by the flow - on effects of the resources boom at present. as for the mining sector itself, its share of gdp has tended to rise since the late 1960s, having been quite low in the mid 20th century. but in 2010, the mining sector ’ s share of gdp was still only about the same as it was in 1910. it will surely increase noticeably over the next five years, though will remain much smaller than it was in the gold rush era. again, none of this is to deny that there are differences in performance by industry and region. it is simply to give some perspective on what we see. the point about long term shifts reminds us to look beyond the immediate conjuncture, and to think about the magnitude of the event through which we are living. for a good part of the change in our terms of trade is a manifestation of a large and persistent change in global relative prices. let me be clear here : there is a cyclical dimension to the china story, and it is important that we remember that. but there is also a structural dimension. and the associated change in relative prices constitutes a force for significant structural change in the economy. i think we have all only begun to grasp its implications relatively recently. for a long time, the world price of foodstuffs and raw materials tended to decline relative to the prices of manufactures, services and assets. but for some years now the prices of things that are grown, dug up or otherwise extracted have been rising relative to those other prices. this is mainly due to trends in global demand. at any point in time for a particular product we can appeal to supply - side issues – a drought, a flood or a mine or well closure, or some geo political event that is seen as pushing up prices. but stepping back, the main supply problem is really that there has simply been more demand than suppliers were prepared or able to meet at the old prices. we do not have to look far for the cause : hundreds of millions of people in the emerging world have seen growth in their incomes and associated changes in their living standards, and they want to live much more like we have been living for decades. this means they are moving towards a more energy