Together with demand recovery, lower potential growth seems to be contributing to the recent rise in inflation through the tighter capacity constraint. In fact, the latest output gap is estimated to be largely balanced (Chart 4).
But the situation on financial markets has certainly changed: financial conditions are tightening, risk aversion is increasing, and uncertainty is high. The sources of risks have shifted as well. Risks in commodity markets, for example, and vulnerabilities with regard to interest rate risk require monitoring. Hence, we cannot rule out the possibility that markets are underestimating the impact of geopolitical risks.