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ANALYSIS

Kuwait inflation cools, but food prices a worry

Kuwait, November 11, 2012

With food price inflation slowing in Kuwait, a major source of upward pressure has abated. However, the recent pick-up in global food prices suggests that inflationary pressures in this category could yet return, said a report.

The annual inflation in Kuwait has slowed down to 1.9 per cent in September, its lowest rate since late 2009, thanks to the stagnant housing rents and food and beverage prices which sank further, according to a report by National Bank of Kuwait (NBK).

The major components of the consumer price index, such as housing, continued to place downward pressure on the general index, said the NBK in its monthly review.

The country's core inflation, which excludes food and beverage prices from the index, also sank further to 1.4 per cent, pointing to very subdued rates in most non-food components, it stated.

The food prices rose 3.8 per cent year on year; well below recent inflation rates that have been mostly well above the 5 per cent mark for the past two years.

With food price inflation slowing, a major source of upward pressure has abated. However, the recent pick-up in global food prices suggests that inflationary pressures in this category could yet return, said the NBK report.

The Kuwaiti lender pointed out that the prices for housing services remained unchanged for the seventh month straight, rising only 0.7 per cent year on year.

The steady prices in this component, which is made up almost wholly of rental fees, have been a consistent and major source of downward pressure on headline inflation.

The component, which makes up about 27 per cent of the general index, has risen by less than 2 per cent since the start of 2011, whereas the general index has risen by more than double that during the same period.

Although the consumer retail sector has been doing well in Kuwait, increased levels of borrowing and spending have not translated into higher inflation rates for the prices of household goods and services, which saw a mere 1.1 per cent year on year increase in September, said the NBK in its report.

On the contrary, the inflation rate in this segment has been mostly slowing down since the beginning of the year. As a bulk of consumer goods are imported, foreign exchange rates can play a significant role in determining price changes in the sector, it stated.

A strong dollar (against other foreign currencies) during the second half of last year and the first half of this year might have played a role in keeping import prices down, said the Kuwaiti lender.

On the annual outlook, NBK said its inflation should remain modest both in the near future – averaging about 3 per cent for 2012 – and possibly next year.

The downward pressure from stagnant housing rents, as well as subdued rates in other price segments, have shown a greater impact on the general inflation rate than sources of upward pressure, such as high international commodity and food prices or increased spending in the consumer sector.-TradeArabia News Service




Tags: inflation | National Bank of Kuwait | Housing | pressure | food price |

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