that this will disappear in fiscal 2015. as a specific example, let us look at developments that occurred in the year - on - year rate of change in the cpi when the consumption tax was raised in april 1997 to 5 percent from 3 percent. it was plus 0. 5 percent in march 1997 prior to the tax hike, and after the hike went to around plus 2 percent for one year, from april 1997 to march 1998. the rate of increase was pushed up by about 1. 4 percent. however, in april 1998, one year after the tax hike, the rate of increase dropped to plus 0. 2 percent and the effect of the tax hike disappeared ( chart 13 ). needless to say, the bank aims at maintaining the 2 percent price stability target in a sustainable manner. therefore, in assessing the price situation in pursuing monetary policy, we believe that it would be appropriate to make assessments by excluding the shortterm variation factor on prices brought about by the consumption tax hike. the second thing is a negative impact on real income due to the consumption tax hike. given that consumption tax is tax revenue for the government, it is unavoidable that the consumption tax hike will have such a negative effect. the increase in the year - on - year rate of change in the cpi does not represent a rise in the value of goods and services themselves, but rather is the result of adding a tax that would be paid at the time of consumption to the prices of goods and services. the impact of the consumption tax hike should be discussed in a context that includes taxation, public finance, and the social security system, and it is necessary to clearly distinguish this from ordinary discussions on inflation. in sum, we believe that an increase in the cpi due to a consumption tax hike needs to be considered separately from the price increase as a trend. the bank aims at achieving the 2 percent price stability target on a trend basis that excludes the direct impact of the consumption tax hike. i should note that, for some fees for public services, the old tax rate of 5 percent will be applied as a transitional measure for a certain period after entering april. such a measure will be reflected in compiling the cpi. therefore, the year - on - year rate of change in the cpi excluding fresh food that will be pushed upward due to the consumption tax hike will remain at about 1. 7 percent in april and will become about 2 percent from may onward. the bank will also take this point into account in assessing

for firms, especially small and medium - sized firms, there might be a concern that they cannot mark up output prices to the extent input prices have risen. in a situation in which prices rise upon escaping from deflation, as i ’ ve just explained, it will become easier for firms to pass an increase in input prices on to output prices. i said earlier that, under deflation, a vicious cycle of a decline in prices, a fall in sales and profits, restraint in wages, stagnation in consumption, and further decline in prices has continued. in such a situation, it was not easy to pass an increase in input prices on to output prices. in fact, according to the tankan survey, over the past 15 years compared with previous years, the diffusion index for input prices – obtained by subtracting the proportion of firms responding that their input prices were falling from that of firms responding that input prices were rising – has been substantially exceeding the diffusion index for output prices ( chart 12 ). by contrast, in an economy and society in which 2 percent inflation continues stably, a cycle just the opposite of the vicious cycle under deflation will be achieved. starting from a moderate increase in prices, a virtuous cycle of the economy of an increase in sales and profits, an increase in wages, rejuvenated consumption, and a moderate increase in prices will be achieved and become entrenched. in a situation in which an economic virtuous cycle continues and firm demand is maintained, it will become easier for firms to pass on an increase in input prices on to output prices. iv. consumption tax hike and inflation let me next talk about the consumption tax hike and its implications for inflation. from next month, the consumption tax rate will be raised to 8 percent from the current 5 percent. as items in the cpi include those that are tax - free or exempted from taxation, the year - on - year rate of change in the cpi will be pushed upward by about 2 percent in association with the 3 percent consumption tax hike. in relation to this, let me point out two things. bis central bankers ’ speeches first, any increase in the year - on - year rate of change in the cpi by the consumption tax hike will be a temporary one. with the consumption tax hike next month, it is estimated that the year - on - year rate of change in the cpi excluding fresh food will be pushed upward on the surface by about 2 percent during fiscal 2014, but