The inflation in Qatar continued to remain moderate in 2014, thanks in part to lower international food prices, said a report.

According to the Ministry of Development Planning and Statistics (MDPS), consumer price index (CPI) inflation remained roughly stable at three per cent in 2014, from 3.1 per cent the previous year, stated the Qatar National Bank (QNB) in its review.

"The key drivers of inflation in 2014 were higher rent inflation offsetting lower international food prices. Going forward, we expect domestic inflation to accelerate, pushing inflation higher to 3.5 per cent in 2015 and 4.4 per cent in 2016," its stated.

Qatar's top lender said the combination of rapid population growth (estimated to have risen by 10.1 per cent in 2014) and higher GDP per capita led to a strong increase in land prices.

According to the latest Ministry of Justice data, land prices increased 92.7 per cent year-on-year in December 2014. As a result, real estate developers raised rents in order to recoup higher land prices, it stated.

Accordingly, rent inflation rose to an average seven per cent in 2014, leading to overall domestic inflation of 3.3 per cent. This is likely to continue over the coming years in line with the favourable outlook for the Qatar economy, said the QNB report.

Accordingly, the domestic inflation is likely to rise to five per cent in 2015 and 5.3 per cent in 2016, it added.

Counterbalancing this, foreign inflation fell slightly to two per cent in 2014 as international food prices dropped on record global food harvests, large US stockpiles and weak demand.

Given that Qatar has limited domestic food production, these lower international food prices are likely to continue pushing Qatar’s food inflation lower, albeit with a lag, stated the QNB in its report.

The other components of foreign inflation (clothing and footwear; and furniture, textiles and home appliances), however, came in stronger than expected in 2014, it added.

As such, foreign inflation did not come down as much as we expected in 2014. Looking ahead, the International Monetary Fund (IMF) is forecasting international food prices to fall by 10.8 per cent in 2015.

"As a result, we forecast foreign inflation to turn negative (-0.5%) in 2015 before rebounding somewhat (1.8 per cent) in 2016, said the bank.

On the 2015 outlook, QNB said the overall inflation is expected to rise from three per cent in 2014 to 3.5 per cent in 2015 and 4.4 per cent in 2016 on rising rent inflation.

"However, there is a risk that large investment spending and the growing population could lead to supply bottlenecks owing to limited domestic capacity. This could potentially push up domestic prices more than expected and lead to overall inflation rising above our baseline forecasts," it added.-TradeArabia News Service