by thermal power, the electricity costs are expected to rise. after the earthquake, an earthquake risk in japan has been recognized again, and firms at home and abroad have been increasingly diversifying their parts procurement from japan ’ s domestic suppliers to overseas suppliers. partly due to the effects of the nuclear plant accident, the number of foreign tourists has plunged. on top of those, with the addition of anxiety against stable power supply and increase in costs, whether the hollowing out of industry, which is sometime called as “ passing on japan ” or “ avoiding japan, ” might intensify or not warrants vigilance. risk of delay in achieving price stability if economic activity becomes weaker than the aforementioned outlook due to various uncertainties, prices might be lower than expected. in addition, prices are associated with statistical uncertainty. the cpi is subject to revision every five years, and there will be a revision this year. the current index will be replaced in august by a new index, and the recent data will also be revised retroactively. while i have mentioned earlier that the year - onyear rate of increase in the cpi was 0. 6 percent in may, it is likely to be revised downward to around zero percent by the index revision. as the recent data will be revised, the outlook for the year - on - year rate of increase in the cpi, which was 0. 7 percent for both fiscal 2011 and 2012, has to be read slightly lower. the bank considers that a state in which the year - on - year rate of change in cpi hovers in a positive range of 2 percent or lower, centering around 1 percent, is closest to “ price stability. ” the current outlook for prices suggests that it might take some more time to achieve such “ price stability, ” and we need to monitor carefully how future economic developments and the index revision might affect the timing of price stability achievement. iii. medium - to long - term challenges to japan ’ s economy long - term downward trend in economic growth is one cause of deep - rooted deflation japan ’ s deflationary trend has been continuing for a protracted period. that suggests that there might be a structural problem as well as cyclical weakness in economic activity on the back of deflation. looking back at japan ’ s economic growth rate over time, the average bis central bankers ’ speeches annual growth rate of japan ’ s economy declined from around 5 percent in the 1970s, to around 1. 5 percent in the 1990s, and

price stability successfully goes together with economic growth, is likely to remain highly uncertain for some time. the inflationary pressure in emerging economies is partly induced by a rise in international prices of mineral resources and foods. in order for emerging economies, and eventually the global economy, to achieve high growth in the medium to long term without increasing bis central bankers ’ speeches inflationary pressure, i believe it so important to make efforts on a worldwide basis in innovation of resource and energy saving as well as in improvement in food productivity. based on overseas economic developments, let me now turn to japan ’ s economy. ii. economic activity and prices in japan a. current state and outlook for economic activity and prices return to the moderate recovery path in the latter half of fiscal 2011 after the great east japan earthquake on march 11, japan ’ s economy once plunged. while, in many cases, an economic downturn is induced by a decline in demand, the plunge after the earthquake has basically been due to constraints on the supply side, including a shortage in parts and power. first, factories and distribution infrastructure have been damaged or destroyed by the earthquake and tsunami, and procurement of raw materials and parts necessary for production has been disrupted. a complicated network of the supply chain has been cut off and nationwide production, particularly automobiles that require many parts, has been greatly affected. second, due to the nuclear power plant accident, the power generating capacity of tokyo electric power company and tohoku electric power company has once declined by 20 to 30 percent. the effects have spread over to various activities other than manufacturing : events including concerts have been cancelled and department stores have shortened their business hours. of course, not everything is due to the supply constraints, and the voluntary restraint associated with the earthquake disaster and the problem of radiation due to the nuclear plant accident have also adversely affected consumer sentiment. thereafter, supply constraints have been rapidly alleviated and production and exports have been recovering at a faster pace than expected by the concerned parties immediately after the earthquake. firms ’ production activity is expected to return approximately to the level prior to the earthquake in the near future. such rapid recovery is, after all, attributable to the firms ’ strenuous efforts. there have been moves of solidarity that go beyond the individual corporate framework, such as firms taking over the production on behalf of other firms in the same industry, and firms lending factories or machinery to the disaster - stricken small firms. a power shortage this summer is also not likely to constrain