, they will definitely bring positive effects to the economy as a whole. i believe that the recent gdp growth — which was positive for six consecutive quarters — is attributable not merely to cyclical factors but also to these structural changes in the economy. the bank, for its part, does not focus solely on raising prices. i believe that it is essential to achieve price stability while the virtuous cycle in the economy continues to operate and the quality of people ’ s lives improves. a joint statement released by the government and the bank in 2013 stated that they aim “ to overcome deflation early and achieve sustainable economic growth with price stability. ” my assessment of recent developments in the economy is that they are in line with such an objective. even if we focus on how wages and prices are affected by the increase in supply capacity, i do not think that it necessarily exerts a negative effect in the long run. as i explained earlier, there is a natural limit to the rise in the labor force participation rate, the streamlining of firms ’ business 6 / 7 bis central bankers'speeches processes, and the efficient reallocation of human resources. therefore, the downward pressure on wages and prices resulting from such efforts will dissipate eventually. let me also note that, in the long run, there are mechanisms through which an expansion in supply capacity leads to an increase in wages and prices. first, firms ’ expectations of higher profits and a rise in households ’ permanent income stimulates the demand side of the economy, such as business fixed investment and private consumption. second, when firms ’ long - term outlook for the business environment starts to improve, they are likely to shift their stance toward raising wages. third, since the rate of growth in labor productivity corresponds to the rate of increase in real wages in the long run, a rise in productivity also exerts upward pressure on wages. and fourth, an increase in the economy ’ s long - term growth potential leads to a rise in the natural rate of interest, enhancing the effects of accommodative monetary policy measures. given these points, it is likely that, as time passes, the long - term positive effects of an increase in supply capacity will gradually outweigh the short - term negative effects on wages and prices. in other words, although an expansion of the economy ’ s supply capacity may delay rises in wages and prices, i do not think that it will hold them back for any protracted period. in my

equipment, including installment of self - checkout machines, full automation of distribution facilities, and adoption of online booking systems. behind firms ’ reluctance to pass on cost increases to sales prices is the fear of losing customers. while this is not surprising given the highly competitive business environment they are in, i believe that the following factors are responsible for further heightening this fear. first, given that the inflation rate has remained stable at an extremely low level for the past few decades, i believe firms have become increasingly afraid to raise prices because consumers are not accustomed to price hikes, or because firms anticipate a negative reaction to price rises from those consumers. and second, the widespread use of smartphones and the expansion of e - commerce may have had an impact. consumers can now easily refer to and compare a wide range of information on prices at the press of a button, and purchase goods and services as necessary, even from a distance. i believe these changes have increased convenience for consumers while, at the same time, increasing their responsiveness to prices, consequently somewhat accelerating price competition among firms. b. outlook for prices that being said, i do not believe that firms will be able to avoid price hikes forever. cost cutting efforts such as streamlining of business processes and efficient reallocation of human resources have their limitations. it will gradually become difficult for firms to absorb increases in labor costs even if they are reluctant to raise prices. in this situation, competing firms in the same environment are likely to be faced with similar limitations. therefore, i believe there will be cases of a price hike starting at an individual firm, followed by hikes at competing firms. once price hikes actually start to become common, consumers are, to some extent, likely to accept increases in prices as a matter of course. subsequently, there will be even greater room for firms to raise prices. employees will then start to demand a raise in wages to reflect these price increases. under such a cyclical mechanism, the uptrend in the inflation rate is likely to gradually strengthen toward the 2 percent price stability target. it is difficult to predict precisely when such a cyclical mechanism will start to operate. having said that, however, i would like to point out that some firms, in the transportation and food service industries for example, have begun to raise prices due to increasing labor costs. there are also frequent news reports that more firms are considering raising prices in the near future. while the situation may differ largely by industry,