We cannot totally rule out the possibility that, if these two shocks simultaneously impact heavily on the global economy, business conditions in various industries and firms in various regions might become synchronized, and thus trigger a negative feedback or amplification of adverse effects through interdependency. Thus, with respect to future developments in the real economy, we should be attentive to the downside risks.
Low inflation in the recovery since 2002 and a spike in energy and material prices Let me turn to inflation. First I will explain why inflation was almost non-existent from 2002 up until the midyear of 2007. Then I will assess the current threat of a possible rekindling of inflation posed by the sharp increase in energy and material prices.