be generated, and they therefore contain important information about people's view of the future. recently, stock prices have been strong, and land prices in some parts of tokyo and other major metropolitan areas have started to rise, suggesting an upturn in people's expectations regarding the economy. however, land prices on the whole continue to be on the decline. thus, not all asset prices are increasing, reflecting continuing caution in people's perception of the outlook. since developments in asset prices reflect changes in people's perceptions as well as influence investment activity of firms and households, they require close attention. iv. outlook for prices given this economic outlook, the environment influencing prices is likely to change gradually. the output gap is expected to continue narrowing moderately as the economy continues to recover. firms'and households'expectations regarding prices play an important role in the formation of prices via, for example, firms'price setting stance. various survey results show that the number of respondents perceiving that prices will rise in the future has been increasing gradually since hitting bottom in 2001 - 02. the consumer price index ( cpi ; excluding fresh food ) has been decreasing on a year - on - year basis since the middle of 1998 for more than seven years now. recently, however, the pace of decline has slowed considerably, with a 0. 1 percent decline in september year - on - year. as the effects of special factors such as the decline in rice prices and the reduction in electricity and telephone charges fall off, the year - on - year changes in the cpi are likely to turn positive toward the end of 2005. thereafter, in this environment, the year - on - year changes are expected to remain positive. forecasts of the majority of policy board members for the cpi in fiscal 2006 are between 0. 4 and 0. 6 percent on a year - on - year basis. despite the fact that the economy has been growing at a pace above its potential since fiscal 2003, over two years now, and the output gap continues to improve, the impact on prices has remained small. this is mainly because the decline in unit labor costs - labor costs per unit of production of goods and services - which was brought about by a decline in wages and a rise in productivity worked to contain upward pressure on prices. unit labor costs are unlikely to record a clear increase in the near future because the rise in productivity will still tend to hold them down despite the increases in wages. in this situation, it is unlikely that the pace

points " insufficient " all industries all industries construction - 50 retailing - 40 accommodations, eating & drinking services - 30 construction retailing accommodations, eating & drinking services - 20 - 10 cy 05 06 07 08 09 10 11 12 13 14 15 16 17 18 fy 05 06 07 08 09 10 11 12 13 14 15 16 17 18 note : figures for software investment for fiscal 2018 are based on plans in the june 2018 survey. source : bank of japan. chart 7 intensifying competition online - shopping ratio to total expenditure 3. 5 interview responses by firms - the bank's regional economic report ( jul. 2018 ) - % 3. 0 since competitors have intensified their pricecutting strategies, we may also cut sales prices further in the future ( a supermarket [ sendai ] ). 2. 5 2. 0 1. 5 1. 0 0. 5 0. 0 cy 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 consumers have a deep - rooted cost - saving mentality and we are losing customers to lowprice retail businesses such as drugstores and online retailers ( a supermarket [ kyoto ] ). we are feeling the threat of other types of retail businesses that have intensified their price - cutting strategies at the expense of profits, and thus we have cut the sales prices of several hundred items, especially privatebrand products ( a supermarket [ hiroshima ] ). notes : 1. figures are calculated using " total expenditure on goods and services ordered over the internet " from the survey of household economy and " consumption expenditures " from the family income and expenditure survey. 2. in the right chart, the parentheses show the industry of the interviewee and the bank branch. sources : ministry of internal affairs and communications ; bank of japan. chart 8 moves to raise sales prices spread of wage increases to prices output prices di ( tankan ) y / y % chg. di ( " rise " - " fall " ), % points 2. 0 eating out 1. 5 services related to domestic duties 1. 0 - 10 - 20 0. 5 - 30 large enterprises 0. 0 - 40 - 0. 5 cy 12 small enterprises - 50 cy 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 notes : 1. the cpi figures are adjusted for changes in the consumption tax rate. notes : 2. there is a discontinuity in the data of the output prices di in the december 2003 survey due to