minor differences in quality. underlying factors may be national differences in the competitive environments of the retail sectors and quality adjustment. ( main factors contributing to a flattening in the slope of the phillips curve ) • a structural shift to the services sector : in general, the frequency of price changes in the services sector is lower than that in the manufacturing sector. given the relatively large shares of raw material and input costs in the total production costs in the manufacturing sector, changes in these prices and costs tend to be reflected in sales prices. by contrast, in the labor - intensive services sector, lower shares of raw material and input costs as well as sluggish growth in nominal wages lead to a low frequency of price changes. • an increase in the price elasticity of demand : intensified competition at home and abroad and a series of negative shocks ( and associated plunge in domestic demand ) have led to an increase in the price elasticity of demand. this has made it difficult for firms to pass their marginal cost of production on to sales prices, generating constant downward pressure on profit margins and wages. consequently, firms, supermarkets, and large discount stores have begun to set their sales prices according to their competitors ’ and clients ’ demand, rather than in response to the output gap or cost developments. a discount - based marketing strategy has become prevalent. based on the observation of the aforementioned factors, turning the viewpoint conversely may lead to the following inference. that is, the phillips curve may change positively – shifting upward with a steepening slope, in the case of japan – if the trend in some of these contributing factors can be reversed ( chart 10 ). b. conceptual channels leading to an upward shift in the phillips curve this subsection will focus on my current thinking on the conceptual channels that may lead to an upward shift in the phillips curve. under the inflation - targeting framework, in general, “ medium - to long - term ” inflation expectations have little correlation with relatively volatile “ short - term ” inflation expectations, especially when medium - to long - term inflation expectations are anchored at the inflation target level. in this circumstance, medium - to longterm inflation expectations also become less correlated with the “ actual ” inflation rate ; however, in the long run the actual inflation rate tends to move at around the level of these inflation expectations. this situation is not yet applicable in japan, since the economy is still in the process of establishing an anchor on the higher medium - to long - term inflation expectations at around 2 percent. until

will resolve the tensions between the dynamics of the real sector, inflation and exchange rate conditions in the us economy. in japan, the uk and europe, the markets expect policies to remain as expansionary, or be even more so, considering their weak economic growth rates and projected inflation exceeding their central banks ’ targets. 2 / 14 bis central bankers'speeches in this context, the fraction of fixed - income assets — including long term — with negative rates has increased considerably around the world. i draw your attention to this fact, because it was unimaginable some years back. thus, higher risk appetite and the search for yield have pushed the prices of risky assets up, squeezing sovereign spreads and appreciating currencies vis - a - vis the dollar ( figure 7 ). in any case, the intensity with which this change in financial conditions will impact activity or commodity prices is not so clear. in the baseline scenario, global activity projections do not change significantly. for the 2016 – 2017 biennium average growth in the world economy is expected to stand at 3. 2 %, while chile ’ s trading partners should grow by 3. 0 %, also fairly unchanged from june. the terms of trade will deteriorate less over the projection horizon, although the trajectories foreseen for the prices of copper and oil are similar to those of june, expecting prices in 2018 of us $ 2. 3 per pound of copper and around us $ 55 per barrel of oil ( table 1 ). locally, second - quarter data for domestic activity and demand confirmed bounded economic growth. gdp posted lower annual growth than in the first quarter, but with a configuration where natural - resource - related sectors — particularly mining — showed less favorable performance while other gdp changed little, if anything. the total consumption component of demand continued to grow at around 2. 5 % in annual terms, while investment posted positive growth, boosted by specific factors associated with imports of machinery and equipment. on the other hand, during the second quarter investment in construction and other works showed a sharper than expected fall, with a still weak real estate sector ( figure 8 ). in this context, this report ’ s baseline scenario assumes that gdp will rise between 1. 5 % and 2. 0 % this year, considering that the information reviewed for the first half of the year brings no surprise with respect to our june projections. for 2017, a range is projected for gdp between 1. 75 % and 2. 75 %, down