Inflation in Kuwait, the world's fourth largest oil exporter, may average closer to 3.5 per cent in 2014 than the 3 per cent previously forecast, said a report.

This is above the 2.7 per cent seen last year, stated the country's top lender National Bank of Kuwait (NBK) in its report.

Inflation in the consumer price index (CPI) stood at 2.9 per cent y/y in February, unchanged from January. The inflation has now been in the 2.5 to 3 per cent range for 11 months in a row, implying a fairly stable inflationary environment, said the report.

"Core inflation remains lower than the headline rate, at 2.6 per cent. But it is worth noting that the core measure has firmed up over the past 6 months, a possible sign that domestic price pressures – while still modest – are rising," the report added.

Food price inflation fell slightly in February to 4 per cent y/y, from 4.2 per cent in January. Although food is an important item in the CPI ‘basket’, this move was not large enough to have a material impact on headline inflation.

However, the broader decline in food price inflation from a peak of 6.3 per cent y/y last May has been influential in keeping the overall inflation rate low: it has reduced headline inflation by 0.4 per cent points since May. However, the recent path of international food prices suggests that this decline may reverse over coming months, said the Kuwaiti lender.

Inflation in the largest component of the CPI – rented housing – stood at 3.6 per cent in February, unchanged from January.

As with food prices, however, the decline in housing rental inflation over the past few months has helped keep overall inflation down. Housing rental inflation has decelerated from a peak of 4.8 per cent y/y last October, taking 0.4 per cent points off the overall headline inflation rate.

The relative softness of rental inflation is at odds with other evidence from the housing market, which shows activity at very solid levels, said the report.

Three other major components of the CPI – clothing, furnishing and ‘other goods & services’ – continue to show strikingly divergent paths. Pressures in the clothing and furnishing components continued to accelerate sharply, and each has seen inflation rise by 3-4 per cent points y/y over the past 6 months.

This has been partially offset by plunging prices in the ‘other’ segment, partly on account of the falling price of gold jewellery. Most of the other CPI components saw little meaningful change between January and February.

According to NBK, the recent trends in the food, housing and ‘core’ segments point to some modest and broad-based acceleration in inflation this year.-TradeArabia News Service