weak. labor cost restraint by firms is persistent, as they are facing greater exposure to global competition and capital market discipline. recently, in particular, sluggish growth in corporate profits resulting from the surge in materials prices has been leading firms, especially small ones, to restrain wages. moreover, the change in the composition of the workforce, resulting from the fact that the high - salaried baby - boomer generation started to retire in 2006 and from increases in the share of part - time workers, has also contributed to the weakness in wages. however, as the economic expansion continues, albeit at a moderate pace, many firms are feeling a shortage of labor, as suggested by the tankan reports, and the number of employees continues to rise. if labor supply and demand conditions continue to tighten, it is likely that upward pressure on wages will gradually increase. this implies that employee income, which is the product of the number of employees and wages, is likely to continue rising moderately. against this background, private consumption has been firm. although weather conditions have caused sales at department stores and at supermarkets to stay virtually flat, sales of digital appliances have been strong and the number of new passenger - car registrations has picked up. meanwhile, however, various survey results are indicating weaker consumer sentiment. factors behind this seem to include rises in prices of daily necessities such as gasoline, kerosene, and food, while wages remain sluggish. developments in private consumption, which may be influenced by the weaker consumer sentiment, should continue to be monitored carefully. meanwhile, housing investment has been showing substantial declines due to the delays in the confirmation of building applications after the revised building standard law came into force. going forward, it is expected that gradual recovery will take place as the delays in the confirmation process are resolved, but there are uncertainties regarding the pace and extent of the recovery because condominium sales are becoming sluggish due to the rise in real estate prices, especially in the tokyo metropolitan area. regarding prices, the domestic corporate goods price index ( cgpi ) has been rising mainly due to higher international commodity prices. the year - on - year rate of change in the consumer price index ( cpi, excluding fresh food ), which had remained at slightly below 0 percent, posted an increase of 0. 1 percent in october 2007, followed by a 0. 4 percent increase in november. as prices of petroleum products and food are increasing, the rate of growth in the cpi is likely to rise

increasingly severe. according to survey results, banks are applying tighter terms and conditions not only on mortgage loans but also on real estate loans for business properties and on corporate and consumer loans. recently released labor market statistics indicate that the pace of increase in employment has decelerated and the unemployment rate has risen. in this situation, however, private consumption and business fixed investment are so far continuing their moderate upward trend, although the pace of increase is decelerating. it seems likely that the u. s. economy will register relatively low growth rates in the short run but will gradually return to a path with growth rates close to the potential rate as the housing market correction progresses. however, the risk should be borne in mind that depending on future developments in the housing market correction and in global financial markets, private consumption and business fixed investment may fall below expectations through negative wealth effects, credit tightening, and deterioration in business and consumer sentiment, thereby leading to further deceleration in u. s. economic growth. the european economy continues to expand, with business fixed investment and private consumption maintaining their upward trend. however, the possible adverse effects on financial conditions of global financial market disruptions may pose a downside risk. meanwhile, emerging economies and oil producing countries have been expanding robustly and are playing a more significant role as pillars of world economic growth. thus, it seems reasonable to expect that thanks to the widening base of growth the world economy will continue to expand robustly. however, downside risks to this outlook are growing, reflecting intensified adjustment in the u. s. economy and in global financial markets. at the same time, attention should also be paid to the risk of inflation. in the united states, inflationary pressures are remaining, reflecting continued high levels of resource utilization, namely in labor and production capacity. in china, the economy continues to expand strongly, and there are signs of overheating, especially in fixed investment, despite various measures taken by the authorities to cool down the economy. the strong growth of the global economy and other factors, such as geopolitical risks and the speculative inflow of funds to commodity markets, are causing international commodity prices to remain elevated, as evidenced by the fact that crude oil prices temporarily rose above 100 dollars per barrel at the beginning of the year. thus, countries around the world face difficult monetary policy challenges in the presence of both downside risks to the economic outlook and upside risks to inflation. iii. developments in global financial markets global financial markets remain unstable,