at a pace above its potential. in this context, some economists argue that labor shortage may constrain japan's economic growth. however, i am in dissent with this argument and believe that labor shortage will instead raise labor productivity through, for example, a gradual increase in labor - saving investment, thereby encouraging further economic growth. the tight labor market conditions also have been exerting gradually increasing upward pressure on wages. in fact, the year - on - year rate of change in hourly wages of part - time employees, which are particularly sensitive to labor market conditions, has risen to the range of 2. 5 - 3. 0 percent. furthermore, many firms appear to have raised their base pay for the fourth consecutive year in the annual spring labor - management wage negotiations this year. base pay rises are especially evident in small and medium - sized firms that face acute labor shortage, amid improvement in business conditions spreading beyond large firms ( chart 7 ). next, i will talk about price developments. although a decline in energy prices since the second half of 2014 had exerted downward pressure on consumer prices, such pressure dissipated and energy prices turned toward pushing up general prices. the year - on - year rate of change in the consumer price index ( cpi ) excluding fresh food has been slightly positive since january 2017. meanwhile, that in the cpi excluding fresh food and energy has continued to be positive as a trend for around three and a half years ( chart 8 ). japan's economy is no longer in deflation, which is commonly defined as a sustained decline in prices. nevertheless, we must admit that japan's inflation has been relatively moderate, despite the fact that corporate profits have been at record high levels and the labor market has been at virtually full employment. this is in striking contrast to the situations in the united states and europe, where inflation rates have already recovered significantly ( chart 9 [ left chart ] ). what lies behind such moderate inflation is the fact that, in japan, people's perception of future price developments - - that is, inflation expectations - - tends to be largely affected by actual inflation rates, which declined in the past. this largely adaptive formation mechanism of inflation expectations is unique to japan, and is rarely observed in other major economies. in fact, despite the global fall in crude oil prices, inflation expectations in the united states and europe have barely declined ( chart 9 [ right chart ] ). this is because the degree to which inflation expectations are affected by past inflation is smaller

cash earnings ( full - time employees ) hourly cash earnings y / y % chg. 2. 0 3. 0 y / y % chg. composition effect, etc. 2. 5 establishments with 100 or more employees establishments with less than 100 employees total ( 5 or more employees ) 1. 5 2. 0 1. 5 1. 0 1. 0 0. 5 0. 5 0. 0 0. 0 - 0. 5 hourly cash earnings - 1. 0 - 0. 5 hourly scheduled cash earnings ( part - time employees ) - 1. 5 - 2. 0 - 1. 0 17 cy 95 note : for hourly cash earnings, q1 = march - may, q2 = june - august, q3 = september - november, q4 = december - february. figures for 2017 / q1 are those of march - april averages. source : ministry of health, labour and welfare. chart 8 consumer prices y / y % chg. introduction of qqe ( april 2013 ) - 1 cpi ( all items less fresh food and energy ) cpi ( all items less fresh food ) - 2 cy10 note : figures for the cpi are adjusted to exclude the estimated effects of changes in the consumption tax rate. source : ministry of internal affairs and communications. chart 9 consumer prices and inflation expectations in advanced economies inflation expectations ( long - term ) consumer prices ( all items ) % % japan japan - 1 united states united states euro area euro area - 2 cy10 beginning of a downtrend in crude oil prices cy 10 notes : 1. figures for japan's cpi ( all items ) are adjusted to exclude the estimated effects of changes in the consumption tax rate. 2. figures for inflation expectations ( long - term ) are 6 - 10 years ahead expectations in the " consensus forecasts. " sources : ministry of internal affairs and communications ; bea ; eurostat ; consensus economics inc., " consensus forecasts. " chart 10 qqe with yield curve control inflation - overshooting commitment inflation rate yield curve control 1. 2 % recent shape of jgb yield curve 1. 0 0. 8 2 % 0. 6 0. 4 target level of the long - term interest rate " around zero percent " short - term policy interest rate " minus 0. 1 percent " 0. 2 0. 0 - 0. 2 - 0. 4 expansion of monetary base continues source : bloomberg. 0 1 year 9 10 15 20 residual maturity nominal and real interest rates