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SHARP DROP IN FOOD PRICES

Kuwait inflation slows to 1.6pc in March

Kuwait, May 12, 2013

 

Kuwait's inflation slowed to a 1.6 per cent year-on-year (y/y) in March, down from 2.1 per cent last month mainly due to a sharp drop in food prices, said a report.
 
The 0.5 per cent points drop from the previous month was also due to a slowdown in household goods and services inflation. Overall, inflation in most segments is well down on the average for 2012, said the National Bank of Kuwait (NBK) in its review.
 
Despite some potential pickup in the second half of the year, the Kuwaiti lender said it expects inflation to remain modest, averaging at about 3.5 per cent or lower in 2013.
 
Most of the slowdown in the March general inflation rate came from the disinflationary force of food prices, which dropped 0.9 per cent y/y. This was the first time in a little over 10 years where food prices actually fell y/y, the NBK report pointed out. 
 
Part of the reason for the fall was simply a base effect: March of last year had seen an atypical jump in food prices (a 2.6 per cent m/m increase), causing the current March figure to appear much tamer in comparison.
 
Nonetheless, food price inflation has in fact been decelerating in recent months, and has slowed down considerably from its peak of 12.3 per cent in November 2010. The main driver has been the drop in international food prices last year filtered out to Kuwaiti food prices, said the country's top lender.
 
"In fact, some major food subcomponents – ones that were not part of the one-off increase in March 2012 – also saw y/y deflation. Meat prices were down 1.2 per cent in March, while cereals and bread prices dropped by 1.5 per cent y/y," it added. 
 
According to NBK, a less potent disinflationary effect came from the household goods and services segment, which went up 3 per cent y/y in March, from 3.5 per cent in February. 
 
"Elsewhere, there weren’t any major sources of upward or downward pressure on general inflation, as the y/y rates for most segments in March were similar to the February figure. Minor exceptions include the transport and communication segment which went up by 3.2 per cent y/y in March, from 3.1 per cent in the previous month," it added.
 
On the housing services segment, NBK said the sector, which is mostly made up of rent, was another source of minor upward pressure. Generally, it continues to see mild rates of inflation — going up 2.5 per cent y/y in March, from 2.4 per cent in February, it stated. 
 
"But given strong conditions in the residential property market, inflationary pressures could yet reemerge. Starting from a relatively low base, and being the largest component of the CPI basket, an increase in measured rental rates would have a notable effect on general inflation."
 
With the end of the first quarter, inflation has come in slightly below expectations and may now do so for the year as a whole, too, said the top Kuwaiti lender in its review.
 
"Our original 2013 forecast of 3.5 per cent may prove too pessimistic. Nevertheless, in terms of the monthly dynamics, it is possible that inflation has reached its low point for the year and will edge higher as we go on – especially if the weakness in the food component reverses," the report stated. 
 
The core CPI measure – which excludes food and beverage prices – is already outpacing headline inflation, at 2.4 per cent y/y in March, it added.-TradeArabia News Service 



Tags: inflation | Kuwait | Food |

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