Through a rise in inflation expectations and a substantial decline in longer-term interest rates, the Bank has succeeded in reducing real interest rates to levels well below the natural rate of interest for the first time in its two-decade-long battle with the zero lower bound on the short-term policy interest rate (Chart 5).
Against this background, the output gap has improved steadily, and corporate profits have marked record highs. The labor market is very tight, at virtually full employment (Chart 6). On the price front, annual CPI inflation excluding fresh food and energy has been positive as a trend for about four years.