of price increase, albeit from a low level. this does not appear to be due to large price rises within a few product groups ; it appears to be a broader upturn. the inflation report we are publishing today indicates that inflation will be close to the target level a couple of years from now. this assumes gradual increases in the repo rate. i would like to emphasise that there are factors which complicate this picture. inflation was unexpectedly low in january. dividing price trends into different categories shows that it was mainly some imported product groups that showed unexpectedly weak development. it is difficult to determine from the outcome of only one month whether or not this is a sign of a more lasting development. naturally, it is something we will pay attention to in our future assessments of inflation. we can also observe that over the past few years inflation has been kept down by high productivity growth and low import prices. this is partly related to developments in economic activity. however, there are probably also lasting factors behind the low inflationary pressure. we can see similar patterns in some other countries. amongst other things, it is probably a question of the effects of increased global competition. the durability of this type of structural change is difficult to determine. i intend to return to this in connection with my look back at inflation developments during 2005. a further complication is that house prices and household borrowing have increased rapidly ( diagram 3 ). there are some risks with this type of development that can be difficult to quantify. one cannot entirely rule out the possibility that credit expansion and house prices are being driven up by over - optimistic expectations. this could lead to a situation in future with sudden downward adjustments in house prices and a large increase in household saving. our assessment is that the probability of this type of scenario is small at present, but that if it were to occur, the negative effects on the economy would be substantial. given our inflation forecast and after taking into account other factors, the executive board ’ s assessment is that it is reasonable to continue gradually raising the interest rate. at the same time, it is important to emphasise that we are easing up on the accelerator, not putting on the brakes. monetary policy is still expansionary, which is clear from a historical comparison of repo rate levels ( diagram 4 ). even in an international comparison, it is clear that sweden ’ s key rate is still very low. the link between interest rate decisions, house prices and household debts there have recently been claims

companies and successful efforts to conserve energy and level out demand. based on an overall judgment, taking into account the information from our business contacts, production is expected to recover to the pre - earthquake level sometime during july to september. household sentiment is also improving somewhat. with regard to business sentiment, we are carefully monitoring business fixed investment plans. in this regard, business sentiment is becoming firm, as evidenced by the june tankan ( short - term economic survey of enterprises in japan ), in which business fixed investment plans were revised upward from the march tankan. after overcoming the supply - side constraints, which has been the most serious cause of concern, the short - term prospects for japan ’ s economy will rely on demand - side developments. in this regard, there are two important factors. first, it seems that the economy can count on exports, which are likely to continue increasing on the back of strong growth in overseas economies. second, demand arising from the rebuilding of capital stock that was damaged by the earthquake, or the so - called “ rebuilding demand, ” is expected to increase gradually. although we have seen only a limited amount of rebuilding demand so far, such demand will become more noticeable as we get a clear overall picture of rebuilding in the coming period. furthermore, although it might be slightly different from the rebuilding demand, private consumption data in the tohoku region shows that there has been a large increase in the so - called “ rebuilding - related consumption ” – namely, consumption for the purpose of rebuilding daily lives, including the purchase of new durable consumer goods such as cars and electrical appliances. based on the various information as i just described, japan ’ s economy is expected to return to a moderate recovery path from the second half of fiscal 2011. the bank published the outlook for economic activity and prices ( hereafter the outlook report ) in late april and made an interim assessment in july. looking at the median of individual policy board members ’ forecasts in the interim assessment, the year - on - year rate of increase in real gdp for fiscal 2011 is 0. 4 percent. the figure is somewhat of a downward revision from the april 2011 outlook report. this is mainly attributable to a smaller carry - over effect from fiscal bis central bankers ’ speeches 2010 on gdp growth for fiscal 2011, reflecting the fact that the earthquake disaster resulted in significant negative growth in the january - march quarter of 2011. the forecast for the year - on - year rate of increase in real gdp for fiscal