around the world. as it resumed thereafter, and with support from fiscal and monetary policies to stimulate economies, aggregate demand increased sharply and significantly. gdp for the united states clearly surpassed the prepandemic level last spring and that for europe recovered to its pre - pandemic level in the second half of last year. in particular, partly because consumption opportunities were constrained by the imposition of various restrictions, pent - up demand for private consumption materialized all at once as the spread of covid - 19 subsided. this has increased labor demand, which in turn has led to labor shortages and upward pressure on wages. i will talk about the slower recovery in japan ’ s gdp relative to the united states and europe later. the second factor is a decline in supply capacity, mainly in terms of labor ( chart 3 ). immediately after the outbreak of covid - 19, the united states saw a plunge in labor input resulting from a surge in the unemployment rate and a decline in the labor force participation rate. as economic activity resumed thereafter, the unemployment rate has followed a relatively steady declining trend ; however, the labor force participation rate has been slow to recover and, in contrast to gdp, labor input has not returned to the pre - pandemic level. this is because some people, particularly seniors, who are more vigilant against covid - 19, have been reluctant to return to the 1 / 4 bis central bankers'speeches labor market. in the united states, this phenomenon has been called the “ great retirement ” or “ great resignation. ” such a decline in the labor force participation rate has not been that evident in europe or japan. the third factor is a sectoral shift in demand, which is typical in the united states ( chart 4 ). the spread of covid - 19 has brought about a major shift in demand from services to goods, and an excess supply of face - to - face services and excess demand for automobiles and digital - related goods have been particularly notable. as a result, a mismatch between supply and demand for individual items has been increasingly severe and there have been semiconductor shortages and logistical constraints. theoretically, a mismatch between supply and demand for individual items only causes changes in relative prices. in practice, however, such a mismatch puts upward pressure on general prices because there is downward nominal price rigidity. in contrast to the united states, the shift in demand has been limited in japan. the fourth factor is a surge in energy prices (

three hypotheses regarding the reasons for the weak inflation in japan relative to the united states and europe. first, the factors that i pointed out earlier as causes of the surge in inflation in the united states and europe have not been that pronounced in japan. that is, due in part to japanese households ’ strong risk aversion, pent - up demand for private consumption has been limited so far ( chart 2 ). consequently, japan ’ s real gdp still has not recovered to the pre - pandemic level seen in 2019. in addition, it has remained relatively easy for japanese firms to hoard labor, because the labor market is not as fluid as in the united states and employment adjustment 2 / 4 bis central bankers'speeches subsidies have been substantial ( chart 3 ). as a result, in japan, the number of people leaving their jobs has shown no marked increase, which is particularly the case for regular employees, and supply - side constraints caused by a decline in the labor force participation rate have been limited. furthermore, overall demand has been relatively weak in japan, and demand shifts from services to goods have been somewhat slow ( chart 4 ). japan therefore has not seen a surge in goods prices like the one observed in the united states. second, the current phase has once again brought to the fore the “ norm ” in japan — that is, the japanese - specific behavior of firms based on the assumption that prices will not increase easily ( chart 7 ). for example, the supply shortages of automobiles due to difficulties in procuring semiconductors are a global phenomenon, but increases in automobile prices have varied across economies and have been pronounced in the united states. while the varying degrees of increase are partly because supply - side constraints in japan have not been as severe as in the united states and europe — as shown by developments in the respective delivery delay indexes of the purchasing managers ’ index ( pmi ) — they are also attributable to japanese firms ’ cautious price - setting stance. when there are supply - side constraints for certain goods, u. s. firms tend to raise prices relatively quickly and allocate goods by giving preference to customers who are willing to pay higher prices. in contrast, japanese firms seem to place more emphasis on longterm business relationships with customers and respond to their demand as much as possible while keeping selling prices unchanged. in fact, lead - lag correlation coefficients between the delivery delay index and the output prices index for the respective economies show