However, it is unlikely that an upturn in the trend of the core CPI will be achieved easily, since: the negative output gap has been narrowing only moderately; there have been declines in both the inflation rate  BIS Review 67/2010  3  currently perceived by households and that expected twelve months out; and the proportion of households expecting prices to be lower in a year’s time has increased.
Such perceptions could affect firms’ price-setting behavior. B. The cause of deflation  Japan’s economy is currently experiencing deflation, a sustained decline in the general price level.