in august 2024. a breakdown of the year - on - year rate of change in the cpi shows that the rates of increase in the prices of food products and of other goods, which had been pushing up overall prices substantially until last year, have declined. this is because cost - push pressure from the rise in import prices after the pandemic has eased. on the other hand, prices of services, in which labor costs account for a large share of costs, have continued on a moderate uptrend. a more detailed look at developments in services prices by item, as depicted in chart 7, clearly shows that the impact of wage increases has intensified. that is, while notably large price increases were seen last year for items such as dining - out due to the impact of higher import prices, prices for items with a high labor cost share did not rise much. in contrast, recently, price increases of around 2 percent can be observed for a wide range of items. these goods - and services - level price developments suggest that the reason for price increases has shifted from the rise in import prices to wage increases that reflect continued improvement in economic activity. under these circumstances, the trend in inflation excluding short - term fluctuations, which the bank calls underlying inflation, is gradually rising toward 2 percent. this is confirmed by the various estimates of underlying inflation shown in chart 8. looking ahead, underlying inflation is likely to continue rising and in the second half of the projection period through fiscal 2026 to be at a level that is generally consistent with the price stability target of 2 percent. this projection is based on the assumption that the changes in firms'wage - and price - setting behavior that have been underway for the past several years will take hold in society and that wage increases will continue into the next fiscal year and beyond. meanwhile, the macroeconomic environment that has supported wage increases to date, such as labor shortages and favorable corporate profits, has remained in place. please take a look at chart 9. labor market developments show that the room for further increases in labor supply is becoming limited, partly reflecting demographic developments, so that the structural shortage of labor is likely to intensify. moreover, as i mentioned earlier, corporate profits have been favorable, and although labor costs have increased, the labor share has in fact fallen to a level not seen since the first half of the 1990s. however, it is necessary to carefully examine whether developments in overseas economies and other factors will have an impact on japan's corporate profits

19 note : figures are based on continuing observations following the sample revisions. source : ministry of health, labour and welfare. chart 5 i. economic activity and prices u. s. economy employment and prices policy interest rate % y / y % chg. % target range for the federal funds rate unemployment rate ( left scale ) cpi ( all items, right scale ) cy 19 cy 19 sources : bloomberg ; haver. chart 6 i. economic activity and prices price developments cpi y / y % chg. energy food products goods ( less food products ) aug. 2024 services + 2. 8 % cpi ( less fresh food ) + 2. 0 % cpi ( less fresh food and energy ) - 1 - 2 cy 19 source : ministry of internal affairs and communications. chart 7 i. economic activity and prices developments in services prices price change distribution of general services 2. april 2024 1. april 2023 share of the number of items, % share of the number of items, % low labor cost ratio low labor cost ratio high labor cost ratio high labor cost ratio - 2 or less - 2 or less or more y / y % chg. or more y / y % chg. notes : 1. figures show the cpi for general services ( less housing rent ). figures are staff estimates and exclude the effects of policies concerning the provision of free education and the effects of travel subsidy programs. 2. cpi items are matched to the items in the 2015 input - output tables for japan and grouped in terms of the share of " wages and salaries " and other labor costs in the domestic output of those items. figures for items with a high ( low ) labor cost ratio are for items that fall into the top ( bottom ) 50 percent in general services ( less housing rent ). source : ministry of internal affairs and communications. chart 8 i. economic activity and prices developments in underlying inflation 1. low - volatility items and trend component for services ( reference ) cpi y / y % chg. 2. inflation expectations cpi ( less fresh food ) 4 % 4 % cpi ( low - volatility items ) trend component of the cpi for services scheduled cash earnings of full - time employees - 1 cy 12 sub - index for households sub - index for firms sub - index for economists and market participants - 1 cy 12 composite index of inflation expectations ( 10 - year ahead ） - 1 cy 12 notes : 1. in the left - hand chart, figures are staff estimates and exclude