start increasing, albeit moderately, as overseas economies – mainly advanced economies – recover moderately on the whole. it should be noted that exports might deviate either upward or downward, depending on future developments in overseas economies. therefore, it is necessary to continue to closely monitor developments, such as in emerging economies, the european debt problem, and the u. s. economy. 4. prices and inflation expectations i will now move on to developments in prices and inflation expectations. excluding the direct effects of the consumption tax hike, the year - on - year rate of increase in the cpi ( all items less fresh food ) for april 2014 climbed to 1. 5 percent. this was because, while the positive contribution from prices of energy - related goods that are directly affected by foreign bis central bankers ’ speeches exchange rates has peaked, improvements have become widespread for a broad range of items other than energy - related goods, including those in the services industry, such as accommodation charges, mainly on the back of an improvement in the output gap. on a basis excluding the direct effects of the tax hike, the year - on - year rate of change in the cpi for april, excluding prices of food and energy - related goods such as petroleum products, climbed to 0. 8 percent from minus 0. 8 percent for march 2013. improvement has become pronounced, as the number of items for which prices have increased has been exceeding 50 percent of the total. as for firms ’ price - setting behavior, interviews with firms and other relevant information have revealed that some firms have been successful in their efforts, such as to raise selling prices while increasing value - added and tapping new potential demand. against this background, there seems to be a gradual increase in the responsiveness of prices to the output gap and in inflation expectations, including short - term ones. let me note that the bank, in the march 2014 tankan, surveyed the inflation outlook of firms for the first time. although there were disparities between the views of large firms and small ones, results showed that the outlook for general prices of all firms in all industries for one year ahead registered 1. 5 percent on average, while those for three years and five years ahead were both slightly above 1. 5 percent, indicating firms ’ expectations of a further rise in inflation. given the current tightening of labor supply and demand conditions, mainly in nonmanufacturing, inflation expectations of firms – as well as households – are susceptible to gaining upward momentum. it should be noted, however,

a. underlying price developments earlier, i mentioned that the bank regards underlying price developments as having remained unchanged despite a fall in actual inflation rate. here, i will first explain more clearly what the bank means by underlying price developments. generally, underlying price developments are assessed by the output gap and medium - to long - term inflation expectations, and they are typically monitored through the core cpi – assessed after bis central bankers ’ speeches excluding volatile items ( that is, fresh food in the case of the bank ). of course, these relationships are reflected in the trend in income growth and firms ’ price - setting behavior. however, the core cpi is not the only indicator monitored. the bank looks at a wide range of other price indicators, including the 10 percent trimmed mean, the laspeyres chain index, the ratio of items whose prices are rising to core cpi items ( the rising - cpi item ratio ), and the breakdown items of the cpi. producer price index, services producer price index, and commodity prices are also closely monitored. the core cpi, 10 percent trimmed mean, and laspeyres chain index have shown a decline since the middle of 2014. by contrast, the rising - cpi item ratio has remained unchanged ( chart 5 ). in practice, whether the underlying price developments remain unchanged could be assessed by observing whether ( 1 ) the prices of a wide range of items are increasing, ( 2 ) such a rise is persistent, and ( 3 ) medium - to long - term inflation expectations have on the whole increased or at least remained stable. currently, the rising - cpi item ratio indicates that a persistent increase in prices is widely observed for about 60 percent of the items covered by the core cpi. on medium - to long - term inflation expectations, some market - based indicators – such as the break - even inflation ( bei ) and inflation swap rates – declined over the past months, but have become constant or begun to rise recently ( chart 6 ). moreover, the survey - based indicators of firms, households, and economists have remained more or less stable, as noted earlier ( chart 7 ). b. medium - to long - term inflation expectations major central banks have clear inflation targets and conduct monetary policy so as to achieve around 2 percent in the medium term. under the so - called flexible inflation - targeting framework, a temporary deviation of actual inflation from the target is accepted. this is permissible as long as there is a natural tendency for actual inflation to converge to around 2 percent.