December CPI: 9.0% yoy, back in single digits… Housing inflation declines from 10.2% yoy to 7.5%
In its latest economic brief, National Bank of Kuwait (NBK) notes that in December 2008, year-on-year (yoy) inflation finally returned to single digits at 9.0%, from 10.4% in November. CPI Inflation has been declining for some time and should settle soon around 6% which we believe is the current underlying pace (chart 1).
The broad price categories have fallen to single-digit inflation, one after the other, with the latest one: housing costs. The latter fell from a high of 16.1% earlier in the year, was 10.2% in November, and finally fell to 7.5% in December 2008, in line with a cooler real estate and rental market. The only two broad categories still above 10% are “food” and “household goods and services”.
Food price inflation fell from 12% in November to 11% yoy in December, a bit more stubborn than other categories. The 1.4% month-on-month jump in December may be partly due to Eid-al-Adha and end-of-year effects. We estimate that, typically, December/year-end adds 1% to the monthly numbers (which are not seasonally adjusted). The trend of food inflation, like elsewhere however, is down and should benefit further from lower commodity prices world wide.
The other big December jump was in “household goods and services” up 2% mom, and 18.3% yoy. We cannot blame that increase on year-end effect. That category saw the highest inflation last year and will be the last to get back into single digits. The category carries a 14.7% weight in CPI and was the most impacted by inflation last year, with furniture prices leading the charge (up 52% yoy in November). There are many imports in that category and their prices have yet to ease because of the strong dinar (in 2008) and because of slower economic conditions.
With December’s data in, 2008 inflation averaged 10.6% for the year, compared to 5.5% in 2007. The well know story is, however, that after rising in 2007 and in the first half of 2008, inflation in Kuwait peaked at a record high in August 2008 (11.6% yoy) and then started slowing in the second half of the year. The slowdown should continue into this year and NBK expects 2009 inflation to average close to 6% for the year.
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