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Kuwait inflation hits 9-year low in 2013

Kuwait, February 11, 2014

The annual inflation in Kuwait fell to a nine-year low of 2.7 per cent in 2013 mainly driven by  falling food prices and the easing of ‘core’ price pressures, said a report.

The consumer price index (CPI) rose slightly to 2.7 per cent year-on-year in December, from 2.6 per cent in November, stated the National Bank of Kuwait (NBK) in its report.

Although small, the move came as a surprise: inflation had been expected to fall sharply in December as a result of a base effect. While inflation should remain at moderate levels through 2014, December’s higher than expected figure is likely to justify an upward revision to our year average forecast of 3.0 per cent over coming months, said the country's top lender.

The ‘surprise’ in the December figure was driven by the housing services component – mostly rents. It rose by a larger than expected 2 per cent m/m. The year-on-year rate still fell to 3.6 per cent from 4.7 per cent in November, but this decline was smaller than we had anticipated.

Due to measurement issues, movements in this component can be choppy. But the latest figure suggests an annualized inflation rate of 8 per cent or so – considerably faster than the general inflation rate. This could be a sign of the housing supply shortage spilling over into higher rents,stated the NBK report.

Ironically – despite the upside surprise – housing was the only sub-component that made a notable negative contribution to the change in the headline y/y inflation rate between November and December. Most other index components saw meaningful increases.

This was noticeably true in the ‘clothing & footwear’ and ‘furnishing & maintenance’ segments, inflation in both of which continued its sharp acceleration of recent months.

The former reflects a rebound from a period of falling prices around a year earlier. The latter has seen especially strong m/m price increases for the past four monthsm, said the top Kuwaiti bank.

Meanwhile, food price inflation rose for the first time in seven months, to 2.8 per cent y/y from 2.4 per cent in November. However, this was still much lower than its recent peak of 6.3 per cent reached last May. The deceleration in food price inflation over the past few months has for the most part been driven by falling food prices at an international level.

Although the latter are still falling, the fall in CPI food price inflation may have gone slightly too far in 2H 2013 and could reverse somewhat in coming months, it stated.

According to NBK, the ‘core’ price pressures may now be rising, albeit from a very low base.

"Although one measure of ‘core’ inflation – the CPI excluding food – actually edged down to 2.6 per cent from 2.7 per cent in November, this was heavily influenced by the erratic housing segment. If both food and housing are excluded, inflation has actually rebounded quite sharply in recent months," it noted.

However, we had more or less anticipated this, and it does not alter our view that inflationary pressures will remain limited in 2014 by a combination of a strong US dollar (which, via the currency regime is keeping import prices down), a still moderate economic growth environment, and low inflation in neighboring GCC countries, said the NBK in its report.

"The high finishing point for inflation in 2013, however, does suggest some upside risk to our 3 per cent year-average inflation forecast for 2014. A figure closer to 3.5 per cent may now be more likely, " it added.-TradeArabia News Service

Tags: inflation | Kuwait | Food |

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