, the basic mechanism has continued to operate in which a positive output gap - - a rise in the level of economic activity - - results in moderate increases in wages and prices. let me elaborate on this point. as i mentioned earlier, in a situation where the economy has been expanding moderately and labor market conditions have remained tight, wages of employees have continued to rise and base pay increases have been achieved for a sixth consecutive year. on the other hand, firms have faced upward pressure such as of personnel expenses and distribution costs on prices resulting from an increase in economic activity. in this situation, moves to raise selling prices have been spreading gradually among firms ( chart 7 ). regarding the output prices di in the tankan ( short - term economic survey of enterprises in japan ), the situation has continued for seven consecutive quarters in which the proportion of enterprises answering that the output prices have risen has exceeded the proportion of those answering that such prices have fallen. this already has lasted for a longer period than that observed during the bubble period. firms'stance steadily has shifted toward further raising prices. in addition, looking at annual price changes across all cpi items, the share of price - increasing items minus the share of price - decreasing items recently has been increasing moderately. of course, the reason why firms can raise selling prices is that households'tolerance of price rises has been increasing, albeit moderately, on the back of improvement in the employment and income situation. such improvement has been achieved especially because the economy has been expanding moderately and the positive output gap has been maintained. as for the outlook, it is likely that japan's economy will continue on an expanding trend and the output gap will remain positive. with the level of economic activity remaining high, firms'stance is expected to gradually shift toward further raising wages and prices and medium - to long - term inflation expectations of firms and households, which have been more or less unchanged recently, are projected to rise gradually. under these circumstances, the year - on - year rate of change in the cpi is likely to increase gradually toward 2 percent, although this will take time. regarding this baseline scenario of the outlook for prices, however, risks are skewed to the downside. in particular, recently, slowdowns in overseas economies have continued to be observed and their downside risks seem to be increasing. thus, it is necessary to pay closer attention to the risk that the economic slowdown stemming from overseas economies will spread to prices. i will elaborate on this point later

china's average tariffs on u. s. goods % 4th round 4th round ( september ) rise in tariffs imposed in the 3rd round rise in tariffs imposed in the 3rd round 1st - 3rd rounds 1st - 3rd rounds % base tariff rate other base tariff rate start of end of may start of sep. 2018 average june sep. note : average tariffs are boj staff estimates based on such factors as the tariff rates under most - favored - nation treatment at the start of 2018, additional tariffs by goods, and the trade value between the u. s. and china in 2017. sources : census bureau ; u. s. government ; wto ; un comtrade ; chinese government ; bown, chad p. 2019. us - china trade war : the guns of august. piie trade and investment policy watch blog, peterson institute for international economics ( august 26 ). chart 6 ii. price developments consumer prices and output gap consumer prices output gap 6 % y / y % chg. cpi ( all items less fresh food ) excess demand cpi ( all items less fresh food and energy ) - 2 - 1 - 4 - 2 - 6 - 3 cy 85 notes : 1. in the left chart, figures are adjusted for changes in the consumption tax rate. notes : 2. in the right chart, figures are based on boj staff estimations. sources : ministry of internal affairs and communications ; bank of japan. - 8 cy 85 excess supply chart 7 ii. price developments situation surrounding consumer prices changes in output prices ( tankan ) diffusion index of price changes 10 di ( " rise " - " fall " ), % points - 5 - 10 - 15 - 20 - 10 - 25 - 20 - 30 - 30 - 35 - 40 - 40 cy 05 % points - 50 cy 05 more price - increasing items more price - decreasing items note : in the right chart, the diffusion index is defined as the share of price - increasing items minus the share of price - decreasing items. the share of price - increasing / decreasing items is the share of items in the cpi ( less fresh food, consumption tax adjusted ) for which price indices increased / decreased from a year earlier. sources : ministry of internal affairs and communications ; bank of japan. chart 8 iii. the bank's conduct of monetary policy yield curve control % 1. 2 recent 1. 0 average bottom 0. 8 target level of the long - term interest rate : around zero percent peak 0. 6 0. 4 short -