transformed demand and supply conditions across the globe : the integration of china, india and other emerging market economies into the world trading system. the first signpost shows that prices of labour - intensive manufactured goods have fallen. china, india and the former soviet union between them have massively increased the supply of labour available to industry around the world. as labour - intensive goods have become more abundant, they have also become cheaper. the signpost points us in a familiar direction : the need to change what we produce. were we still producing the same labour - intensive goods as before, with output concentrated in industries like agriculture ( including hops ), textiles, coal - mining and ship - building, we too would have seen the price of our own output fall, just as it did for hop growers a century ago. instead we allowed output and employment to expand in those industries where we could exploit a comparative advantage. in kent, the expanding sectors include financial services, transport ( with 18 million tons of freight passing through the channel tunnel each year ) the exploitation of life sciences, and higher education ( with five universities in the county ). as consumers, we have benefited from falling prices of goods made in china and elsewhere in asia. between 1995 and 2005, the prices of imported manufactured goods fell by a sixth and, relative to the price of domestically produced output, by no less than a third. so over the past decade we have been able to increase consumption by more than the increase in production. openness to the world economy has resulted in a higher standard of living. the second signpost marks the rise in oil and other commodity prices. rapid growth of production in china, india and other newly integrated economies has led to a substantial rise in the demand for oil and other raw materials. between 1995 and 2004, net imports of oil to china rose by a factor of seven. unlike earlier episodes of high oil prices, which were driven largely by temporary supply constraints, the recent increase in the demand for oil has been reflected in higher prices for future delivery as well as higher spot prices. similar rises are apparent in the market for gas. the signpost marked higher energy prices points us towards ways of using less energy, to alternative energy sources and to new sources of oil production such as the canadian tar sands. the first two signposts point us in the right direction. but the path has not been easy to follow. we have seen movements - in both directions - in inflation, consumer spending and output growth. interest

90 - day interest rate projection, based on a range of assumptions, provides a guide of what monetary policy settings may be needed to return or keep inflation at target. we feel that this is a more informative approach than assuming a constant or market path for interest rates – which may present an interest rate path that is inconsistent with the bank ’ s price stability mandate. forward guidance – avoiding potential pitfalls this transparent approach comes with potential costs. first, research highlights that increased transparency, in some cases, can be detrimental to the economy. this is particularly the case if the public takes the bank ’ s information as definitive, despite it being noisy or imperfect. 8 we aim to minimise such instances by offering a full discussion of the assumptions and risks that underpin our projections, to clearly highlight the limitations in our knowledge. second, some research claims that when a central bank provides an endogenous interest rate projection, fears of credibility loss may lead it to stick to a previously published policy path, even when faced with new economic developments. 9 i can say, from my experience, that this has never been a problem at the bank. for further discussion, see woodford ( 1999 ), “ optimal monetary policy inertia ”, the manchester school supplement, vol. 67, issue s1, pp 1 – 35. see ford, kendall and richardson ( 2015 ), “ evaluating monetary policy ”, reserve bank of new zealand bulletin, november 2015. see kamber, mcdonald, sander and theodoridis ( 2015 ), “ a structural model for policy analysis and forecasting : nzsim ”, reserve bank of new zealand discussion paper, dp2015 / 05. these points are expanded on in : morris and shin ( 2002 ), “ social value of public information ”, the american economic review, vol. 92, no. 5, pp1521 – 1534 ; dale, orphanides and osterholm ( 2011 ), “ imperfect central bank communication : information versus distraction ”, international journal of central banking, vol. 7, no. 2, pp 3 – 39, june 2011. this issue is discussed in : mishkin ( 2004 ), “ can central bank transparency go too far? ”, nber working paper 10829 ; goodhart ( 2009 ), “ the interest rate conditioning assumption ”, international journal of central banking, vol. 5, no. 2, pp 85 – 108, june 2009. bis central bankers ’ speeches third, some