Inflation easing in Kuwait
Food prices rose 3.8% y/y; well below recent inflation rates that have been mostly well above the 5% mark for the past 2 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.
Prices for housing services remained unchanged for the 7th month straight, rising only 0.7% y/y. 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% of the general index, has risen by less than 2% 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% y/y increase in September. 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.
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.
Inflation should remain modest both in the near future – averaging about 3% for 2012 – and possibly next year. 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.