of 0. 0 - 0. 5 percent. in order to achieve the 2 percent price stability target in japan, it is necessary that ( 1 ) the deflationary mindset be dispelled, and ( 2 ) the perception that prices of goods and services as well as wages are supposed to go up every year by around 2 percent becomes firmly entrenched in society as a whole - - or, in other words, the 2 percent inflation takes hold as a the well - known argument that a global approach should be taken into account in the basic determinants of inflation is one made by claudio borio, head of the monetary and economic department of the bank for international settlements ( bis ). for the recent empirical analysis, see the following : auer, raphael, claudio borio, and andrew filardo. " the globalisation of inflation : the growing importance of global value chains. " bis working papers no. 602 ( january 2017 ). https : / / www. bis. org / publ / work602. pdf. meanwhile, there has been no confirmation of any noticeable, direct influence of global slack on domestic inflation, according to the analysis conducted by economists from the federal reserve board. for details, see the following : ihrig, jane, steven b. kamin, deborah lindner, and jaime marquez. " some simple tests of the globalization and inflation hypothesis. " international finance vol. 13, issue 3 ( december 2010 ) : 343 - 375. federal reserve board staff have updated the latter analysis using data through early 2017, and have confirmed that their argument remains valid. norm for prices. in this regard, it is essential that the bank be committed in its conduct of monetary policy so as to achieve the price stability target, as i mentioned earlier. in the meantime, maintaining effective communication between the bank and the government is crucial. furthermore, nationwide changes are needed in the overall behavior and awareness toward prices. of firms that have raised prices of their products and services recently, many have done so for the first time in more than two decades, and at present, firms themselves have limited experience in terms of raising prices. moreover, consumers are not yet accustomed to an environment where both wages and prices increase at a certain pace. thus, a change in the norm does indeed mean changes in various aspects of society. financial literacy - - the next topic i will touch upon - - may seem unrelated to economic activity and prices or monetary policy at first,

at last recovered to the level of april in the year prior to the hike. moreover, i believe that household consumption remains vulnerable, as seen in real private consumption by type in the consumption activity index ( cai ) shown in the right - hand graph of chart 5 ; although consumption of durable goods and services has been increasing, albeit with fluctuations, that of non - durable goods including food, beverages, and clothes has continued to be sluggish. as long as such weakness remains, we must not underestimate the effects of the tax hike on consumption. furthermore, i consider that economic growth for fiscal 2019 and onward is likely to decelerate, taking into account the following factors through fiscal 2020 : ( 1 ) the possibility that the expanding trend of domestic business fixed investment will come to a halt, mainly due to the dissipation of olympic games - related demand, and ( 2 ) the possible materialization of the aforementioned risks surrounding developments in overseas economies. b. recent developments and outlook for prices next, i will move on to price developments in japan. the year - on - year rate of increase in the consumer price index ( cpi ) for all items less fresh food for july 2018 was 0. 8 percent, as shown in the left - hand graph of chart 6. however, it should be noted that the contribution of a rise in energy prices to the cpi was significant at 0. 5 percentage point, and the rate of increase for all items less fresh food and energy, which directly reflects supply - demand conditions, stood at only 0. 3 percent year on year. in assessing prices, it is important to grasp underlying developments, excluding those cpi items with large fluctuations. the right - hand graph of chart 6 shows some indicators that represent the underlying developments in consumer prices. these have been on a downtrend since march 2018, and i would therefore argue that the trend momentum of inflation has weakened. the important indicators that affect underlying price developments are the output gap and medium - to long - term inflation expectations. the output gap, as shown in the left - hand graph of chart 7, has moved further into positive territory, reflecting improvements in the capital stock and labor markets. nevertheless, the trend momentum of inflation has been weakening. this inconsistency between a widening output gap and weakening inflation may be the result of a number of factors. the july 2018 outlook report showed that households'tolerance of price rises has not been increasing and that firms'wage - and price - setting stance