In order to overcome this situation, it is necessary to change the entrenched view that “prices will not rise” and achieve a state in which firms and households act based on the assumption that “prices will rise moderately every year.” In the economic jargon, people’s view on how prices will develop in the future is called inflation expectations.
And although inflation rates tend to fluctuate – reflecting not only the business cycle but also temporary factors such as changes in commodity prices – they are likely to do so at around the level of inflation expectations on average, if medium- to long-term inflation expectations are anchored at a certain level.