More importantly, a basic wage-setting mechanism – base salaries are revised in line with price increases, which was almost forgotten under deflation – has started to revive in labor-management wage negotiations. It could lead to a breakthrough in changing people’s fixed idea under deflation that base salaries would not rise. That would have positive effects on peoples’ medium- to long-term inflation expectations.
This vigilance is important because higher input costs are gradually feeding through into the down-stream, and there are some indications that inflation sentiment among consumers might be slowly growing. Having said all this, I think the risk balance for growth is still slanted to the downside, while pressures on prices are on the upside.