An interesting feature, looking back at Figure 3,is the recent divergence between core and headline inflation rates.
An examination of developments in each component of the CPI basket helps to clarify the sources of this divergence, as well as the overall low rates of inflation.
A key element that has kept headline inflation above core has been the price level of raw food (especially rice, flour and flour products,and vegetable and fruit), which rose 9.3 per cent in
2003.
Furthermore, higher world oil prices pushed domestic energy prices up by 3.7 per cent.
At the same time, the persistence of low core inflation reflects a sustained decline in housing rent, which fell by 0.9 percent in 2003, as well as administered price measures on basic utilities, transport and communication, healthcare, and education, that are seldom increased.
Together, the latter components and housing rent make up just under half of the CPI basket.
Figure 14 shows the contribution to growth of various components of core inflation as well as their respective weights.
Nevertheless, from a longer perspective, average headline and core inflation since 1986 had been close to one another at 3.9 and 3.7 per cent, respectively.