4  BIS central bankers’ speeches  Even if deflation is moderate, it may cause customers to postpone purchases and increase savings in anticipation of a lower price in the future, especially if the zero lower bound raises real interest rates above their desired value. In Fig 2, we plot household savings as a share of GDP in Japan against the deflation rate.
The Bank expects that next year, labour’s contribution to the potential growth of the economy will be half what it was in 2007. That’s the labour story, in a nutshell, and it is slowing us down. There’s another dimension to the demographics story – one that gets less attention, but that merits careful consideration to fully understand what the future holds.