Whether the outcome of discretionary political choices – to inflate public bureaucracies or permit unsustainable early retirement dates for pensioners – or simply the budgetary by-product of adverse demographic trends, fiscal structures have grown more rigid over the last decades. In such circumstances, fears of spiralling debt dynamics have often obliged debt-ridden countries to act pro-cyclically in the midst of severe recessions.
Taking the aforementioned economic outlook and Japanese firms' price-setting behavior into account, it is expected that prices will increase, albeit at a moderate pace. That is, the year-on-year rate of change in the CPI is likely to increase in positive territory for the time being, mainly due to a rise in energy prices.