Underlying inflation is expected to increase graduallyFirms’ behavior has shifted more toward raising wages and prices, as per the spring wage negotiationsBaseline scenario is that virtuous cycle between wages and prices is projected to keep intensifyingBut there remain
uncertainties regarding this outlookNeed to carefully monitor factors such
as firms’ wage and price-setting behaviourMoves to reflect
wages in selling prices could strengthen to a greater extent than expectedIn this situation,
there is a possibility that wages and prices will deviate upward from the baseline
scenarioFuture developments in foreign exchange rates and international
commodity prices also present a riskThis may lead prices to deviate either upward or
downward from the baseline scenarioFull 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.
