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Kuwait- Inflation steady at 2.9% in Feb seen edging 'higher' in 2014  Join our daily free Newsletter

MENAFN - Arab Times - 06/04/2014
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(MENAFN - Arab Times) Inflation in the consumer price index (CPI) stood at 2.9% y/y in February, unchanged from January. Inflation has now been in the 2.5 to 3.0% range for 11 months in a row, implying a fairly stable inflationary environment. 'Core' inflation remains lower than the headline rate, at 2.6%. 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. Food price inflation fell slightly in February to 4.0% y/y, from 4.2% 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% y/y last May has been influential in keeping the overall inflation rate low: it has reduced headline inflation by 0.4% points since May. But note that the recent path of international food prices suggests that this decline may reverse over coming months



Inflation in the largest component of the CPI - rented housing - stood at 3.6% in February, unchanged from January. Changes in this component only appear once every 3 months, and since no change was scheduled for February, the figure was expected. 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% y/y last October, taking 0.4% 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



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% 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 jewelry. Most of the other CPI components saw little meaningful change between January and February



Although 'core' price pressures may have firmed up a little over the past few months, we do not see them rising very aggressively over the near to medium term. For a start, the recent rise has come from a very low base: excluding food and housing, core inflation bottomed out at 0.7% y/y last August, so even with the recent rise, current levels are still low. Moreover, the continued strengthening of the Kuwaiti dinar is helping to keep a lid on import prices. Perhaps linked to this, inflation at a wholesale level has also decelerated of late



Nevertheless, recent trends in the food, housing and 'core' segments point to some modest and broad-based acceleration in inflation this year. Inflation may now average closer to 3.5% in 2014 than the 3.0% previously forecast, and above the 2.7% seen last year. However, this is still a manageable level. Given the domestic authorities' growth-oriented priorities and the uncertain international environment, inflation is for now unlikely to register as a significant policy concern

 


Arab Times




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