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Kuwait inflation eases to 2.5pc in Aug

Kuwait, October 6, 2013

Kuwait's annual inflation rate eased to 2.5 per cent in August and prices edged down slightly from the previous month on lower pressure from food and ‘core’ components, according to a report.

The inflation in the consumer price index (CPI) continued to decelerate in August, falling from 2.9 per cent in July. This was mainly due to the falling inflation across a range of sub-components, including the erratic food category, said the National Bank of Kuwait (NBK) in its report.

The food price inflation edged down to 5.2 per cent y/y in August from 5.4 per cent in July, its third consecutive monthly fall. This came as a mild surprise, said the top Kuwaiti lender.

July’s soft figure had suggested that the rise in food prices traditionally associated with Ramadan – which fell across two months this year – might materialize in the August data. While the food price component did rise by 0.5 per cent m/m in both months, the increases were more modest than those often associated with the season, it stated.

At above 5 per cent, food price inflation remains an upward source of inflationary pressure overall. But given the easing in global food prices over the past year or so – which should feed into domestic food prices with a lag – a meaningful pick-up in the food price component of the CPI appears unlikely.

Indeed, food price inflation could head below 4 per cent later this year, said the NBK in its report.

Three other segments were responsible for August’s decline in headline inflation: furnishing & household maintenance, ‘other’ goods & services, and clothing & footwear.

The latter has plunged from 5 per cent y/y to -1.2 per cent y/y over the past year, following a decade or so of solid increases. Taken together, the decline in inflation in these three categories has reduced the headline inflation rate by some 1 per cent over the past year.  

In the remaining segments, inflation either declined or was unchanged from July, with little effect on the overall index, said the report.

According to NBK, the 'core’ inflation (i.e. excluding food), dipped to 1.9 per cent y/y from 2.2 per cent in July and has now fallen by 0.9 per cent points over the past year.

"We suspect that a combination of moderate economic growth and weak import price pressures, generated by the strength of the trade-weighted Kuwaiti dinar, have driven the decline in core inflation," the country's top lender stated.

The decline in the core rate would have been sharper still, were it not for the housing component. Housing rent inflation has climbed from 1.7 per cent y/y to 4.0 per cent over the past twelve months, reflecting a more buoyant residential property market. Excluding both housing and food, inflation in the remaining components of the index declined to just 0.7 per cent y/y in August, from 3.4 per cent y/y a year earlier, it added.

NBK pointed out that August could prove to be the low point for inflation under this narrow measure.

"Indeed, core price pressures in general may start to creep higher over coming months, driven by a combination of base effects and slightly faster economic growth. Still, we look for this year to register a modest 2.5 per cent CPI inflation rate," said the report.

"Going forward, further declines in food price inflation should help to keep inflation subdued, despite a modest rise in core price pressures. We maintain our inflation forecast at 2.5 per cent for 2013 as a whole," it added.-TradeArabia News Service

Tags: inflation | Kuwait | Food | Housing |

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