Thus, firms are expected to invest in their human resources wherever necessary through more proactive wage increases, so as to maintain their production levels. Through such wage increases, the virtuous cycle from income to spending will be enhanced, and inflation expectations of households and firms will rise. 2. Tangible factors Next, I will explain the tangible factors that affect prices.
The Bank estimates the output gap, which is the economic measure of the difference between aggregate demand (actual output) of the economy and average supply capacity (potential output) that is smoothed out for the business cycle.