over into the cpi eventually. given what i have just outlined, let me interpret the bank's baseline scenario for the price outlook mentioned earlier using the framework of " sticky " and " flexible " consumer prices. it can be said that sticky consumer prices are expected to rise gradually along with wage growth ; however, as the spillover of a fall in import prices to a decline in flexible consumer prices fully takes hold, the rate of increase in overall prices is projected to be pushed down for the time being. 3. upside risks to prices next, i will discuss risks to the outlook for prices. in my view, upside risks require attention for the time being, but thereafter, more attention should be paid to downside risks. i will first focus on the upside risks to prices. it is assumed that sticky consumer prices will continue to rise, but also that, in contrast to the baseline scenario, there is a risk that the rate of increase in flexible consumer prices will not cool down. earlier, i said that flexible consumer prices tend to track movements in import prices with a time lag. however, this is simply an observation based on the fact that such a relationship existed in the past. as i mentioned earlier when talking about price developments in japan, the latest opinion survey on the general public's views and behavior, along with other reports, points out the possibility that households'perception of inflation that prices will not rise, which has been deeply entrenched, may be on the verge of changing. from the standpoint of firms, they may consider that the time has come to rethink the price - setting behavior that took root during the past period of deflation. in other words, in setting product prices, firms may think along this line : " when prices of raw materials eventually come down, sales may not contract even if we do not lower product prices. " if an increasing number of firms adopt such price - setting behavior, they will not reduce selling prices even if import prices decline. as a result, the rate of increase in flexible consumer prices may not cool down as much as expected. meanwhile, if firms continue to raise wages by tapping into higher margins, the rate of increase in sticky consumer prices could also rise. in relation to upside risks to prices in japan, i would now like to touch on the points i am focusing on in terms of the price change distribution by item in the cpi. let us take as an example the united states, which has already experienced an ups

( s & l ) crisis intensified in the late 1980s and after the global financial crisis in 2008. that said, even if financial stress arises, it is not easy to accurately predict its impact on the real economy. monetary tightening is intended to curb overheating of the economy and return it to a " goldilocks " situation. however, if financial stress increases before the economy returns to a proper level of economic growth, it will become difficult to provide an outlook for economic activity and prices, and policymakers will face a hard decision : whether to continue monetary tightening, to halt it, or to shift to monetary easing. for example, if the shift to monetary easing is premature, there is concern that an insufficient curbing of an overheated economy may lead to the entrenchment of high inflation. on the other hand, if the shift to monetary easing is put off and financial stress intensifies significantly, the adverse impact on the economy could increase. although the united states has experienced multiple bank failures since march 2023, the financial market seems to have regained stability, owing to swift responses by the u. s. authorities. a review by u. s. supervisory bodies and other analyses have pointed out that bankruptcies were attributable to the peculiar structure of the financial institutions'balance sheets and the poor level of risk management, such that these institutions were unable to adhere to basic practices for managing interest rate and liquidity risks. it seems to be widely recognized therefore that these bankruptcies were basically caused by factors at the level of individual institutions. the downside risks to the u. s. economy that i explained, if they were to materialize, could have a significant impact on japan's economy. it is therefore imperative that the bank carefully monitor the course of developments, including financial conditions. ii. conduct of monetary policy basic idea i would like to present my views regarding the bank's conduct of monetary policy, based on the current economic and price developments and the future scenario i have explained so far ( chart 12 ). since 2022, particularly in the face of rising prices, some have suggested that the time has come for the bank to revise its monetary policy. indeed, with observed inflation rates increasing at a fast pace and expected rates showing a moderate rise, i consider that a change has started to take hold in the deflationary mindset or people's perception of inflation that prices will not rise. in that sense, we are coming closer to