The current inflation picture differs widely among various countries, as is highlighted among the four that reported September CPI data just today. Two that have modest uptrends in consumer prices, the Czech Republic and Lithuania, are at the same time experiencing firming in their price movements compared with the last year or two. In contrast, countries where current inflation looks higher, Brazil and Slovakia, are actually seeing some slowing from the pace that prevailed in 2002 and 2003.

In two countries where we examined CPI components, it appears that administered prices might be at least partially responsible for the divergent behaviors. In the Czech Republic, alcohol and tobacco barely moved last year, but lurched ahead this year in April and May, so that item is now 4.0% above a year ago. In neighboring Slovakia, the opposite development has occurred; alcohol and tobacco jumped 16.0% during 2003, but this year is only running 1.8% above its year-earlier level. A strong rise in post and telecommunications in the Czech Republic is also lifting the present price trend. Education expenses in both countries have accelerated this year.

One pattern that is common to both of these Central European nations is cheaper clothing costs. In the Czech Republic, these prices are down 3.9% from a year ago, following a 4.6% drop during 2003. In Slovakia, clothing costs are up just 0.1% from September 2003, but are slower than last year's overall rise of 2.0%. Prices of home furnishings are falling outright in both countries.

In recent months, observers have tended to interpret inflation developments largely by what is occurring in world energy markets. While energy costs are certainly important in every country, our discussion here highlights the significant roles of other quite diverse factors, which ought not to be forgotten in assessing inflation prospects.