Dr. Karina Doorley:

That is right. If the objective is to keep pace with forecast inflation, then the increases would have had to have been larger than they were. That is true. That is typically why most countries that operate a system of indexation use a historic index. They will look at average inflation over the past year and use that to index next year's parameters. Of course, there are issues with that. In the UK we are seeing that average inflation over the last year was up much less than forecast inflation for next year is and there are calls to adjust the way indexation is carried out next year because of this. Thus, depending on the business cycle, using a historic index can be problematic because you are tied to using potentially a lower index than what forecast inflation might be. Of course, there is always the option of discretionary policy to target those imbalances.