- Underlying inflation is expected to increase gradually
- Firms’ behavior has shifted more toward raising wages and prices, as per the spring wage negotiations
- Baseline scenario is that virtuous cycle between wages and prices is projected to keep intensifying
- But there remain
uncertainties regarding this outlook - Need to carefully monitor factors such
as firms’ wage and price-setting behaviour - Moves to reflect
wages in selling prices could strengthen to a greater extent than expected - In this situation,
there is a possibility that wages and prices will deviate upward from the baseline
scenario - Future developments in foreign exchange rates and international
commodity prices also present a risk - This may lead prices to deviate either upward or
downward from the baseline scenario - Full report
All of this is like a supporting document to their rate hike yesterday and reaffirms the current policy path they are on. The details of the report does highlight a risk to both sides of the inflation equation though. But they are taking it more with a glass half full approach, rather than a glass half empty.
This article was written by Justin Low at www.forexlive.com. Source