Inflation in consumer prices in Kuwait held steady at 2.6 per cent year-on-year (y/y) in April, as inflation across most components stabilized, said the latest Economic Update from NBK, a leading bank in the region.

Softer inflation in housing rent has been a key contributor to lower inflation recently, as has food inflation. Local food prices continued to fall amid an ongoing decline in global food prices. Core inflation, which excludes food prices, also came in unchanged from March at 3.3 per cent y/y.

Inflation is expected to gather some pace from the second half of 2017 onward, as the government hikes electricity and water tariffs. The tariffs are set to rise to 3-5 fils per kilowatt-hour (kWh) for the various sectors from the current 2 fils.

In May, the Ministry of Electricity & Water began applying new utility tariffs in the commercial sector. Tariffs rose to 5 fils/kWh from 2 fils and to KD 2per 1,000 imperial gallon of water from KD 0.8. “The increases in utility prices are expected to push inflation up slightly from current levels to an expected annual average close to3 per cent in 2017; this is slightly lower than the 3.2 per cent reading in 2016,” NBK said.

Inflation in food prices remained soft in April, the Economic Update pointed out. Local food prices fell by 0.2 per cent y/y as global food prices declined sharply. According to the Commodity Research Bureau, international prices of commodity foods were down by 8.4 per cent y/y in April. Inflation in local food prices may face some limited upward pressure during Ramadan in May and June, when demand for some food staples typically rises. Indeed, a number of local co-ops have already hiked some prices by 20 per cent to 35 per cent, the report said.

Inflation in housing services came in unchanged from March. Inflation in the housing component, mostly comprised of housing rents and updated quarterly, slowed from6.4 per cent y/y in 4Q16 to a three-year low of 4.3 per cent y/y in 1Q17, in-line with some softness in the housing market. However, we expect momentum in this segment to pick up in the second half of 2017 on the back of higher utility tariffs.

Inflation in the retail sector remained weak amid subdued consumer demand. Inflation in clothing & footwear prices fell deeper into deflationary territory in April after retreating by 1.1 per cent y/y, as the ongoing weakness in consumer demand continues to lead to more frequent and extended promotions. Car prices also continued to decline for the seventh consecutive month in April, after falling by 1.3 per cent y/y. Inflation in “other goods & services” was flat amid softer gold inflation, while inflation in the furnishings & household maintenance segment was stable at 2.9 per cent y/y.

Inflation in services was steady at a multi-month high of 2.4 per cent y/y in April. Price growth remains particularly strong in the hospitality sector. At 4.5 per cent y/y, inflation in the restaurants & hotels segment remained relatively elevated. Inflation in the services ex-housing has also been buoyed by the recent increases in transport service fees.

Transport services have been readjusting their fees to account for the higher fuel charges that were implemented back in September of 2016. In April, inflation in this segment stood at a multi-year high of 3.3 per cent y/y. – TradeArabia News Service