the sgp rules. it is to be hoped that the european parliament will revert to an automatic sanction mechanism. indeed, it should be possible to start with some sanctions even before a country breaches the 3 % - of - gdp rule, thus strengthening the preemptive side of the framework. concluding remarks having stabilized the global economy over the last three years, the current challenge is to return on a path of increased stability. this will have distinct consequences for the global economy. given the massive debt burden that has to be eroded, the industrialized world will experience lower growth potentials. on top, the necessary reduction of debt will lead to slower growth rates in the short term as the unavoidable consequence of the deleveraging process. sustainable, longer - term growth, however, can only be reached when fundamental economic imbalances are tackled and structural reforms are initiated. in europe, more ambitions and commitment by political leaders are needed. stricter rules and higher capital requirements for the financial industry will make the system stronger and healthier. but effective regulation also requires on - the - ground supervision based on competence and proximity. rules appropriate for the marked based model should not be applied to the heterogeneity of the european system. as the economy in the euro area is largely based on the availability of bank loans any regulatory change must take account of that. otherwise, continental banks might suffer from competitive disadvantages. as a consequence financing conditions for the real economy might deteriorate, dampening growth and job creation.

many firms. this makes a striking contrast with the episode that occurred last april, when many firms attempted to raise their sales prices, only to back off rather quickly as demands faltered, perhaps because this move coincided with the consumption tax hike. as firms ’ and households ’ views on prices have changed clearly, especially since the turn of the fiscal year, a positive feedback between the increase in wages and the moderate rise in inflation is now firmly in place on the back of record profits. relationship between wage increases and inflation i would like to elaborate on the relationship between wage increases and inflation of goods and services. our experience shows that wage increases have been moving almost in parallel with inflation of goods and services ( chart 12 ). it often is said that, if wages do not match up with inflation, real income will decrease, thereby exerting negative effects on consumption. however, such developments, if they occur at all, will not last for long, at least in the economy as a whole. this is because, if they were to occur, consumption will decrease, making it difficult for firms to keep raising prices. in turn, if wages increase, firms will be urged to raise their sales prices in order to secure their profit margins, leading to higher inflation. thus, there are only two scenarios in reality : either both wages and prices increase or neither wages nor prices increase. wage increases and price rises are two sides of the coin, so to speak. qqe, which the bank has been pursuing, is not intended to engineer increases merely in prices by any means. but rather, it is designed, in accordance with the mechanism of the economy, to realize a moderate inflation being accompanied with wage increases. looking ahead, as the bank pursues qqe and the observed inflation rate rises, medium - to long - term inflation expectations are also likely to follow an increasing trend and gradually converge to around 2 percent – the price stability target. accordingly, firms ’ wage - and pricesetting behavior is expected to be more proactive, and inflation rates are likely to gradually rise accompanied by wage increases. the year - on - year rate of change in the cpi for all items less fresh food is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices and, as the underlying trend in inflation steadily rises and the effects of the decline in crude oil prices dissipate, the rate of increase is expected to accelerate toward 2 percent – the price stability target.