Recent developments in the CPI reflect the narrowing of the output gap (Chart 20). As such, once the actual CPI starts to rise, the inflation expectations of households and firms will be reinforced, and this will accelerate an increase in consumption and investment. Furthermore, a rise in actual inflation will shift the Phillips curve upward through a rise in inflation expectations (Chart 21).
As I have explained based on a number of indicators, Japan’s economy is judged to be on the verge of escaping from the deflation that has lasted for a long time, and it is recovering moderately.