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Kuwait inflation slows to 2.7% in April; pegged at 3.0% in 2014 Food and housing prices continue to decelerate

KUWAIT CITY, June 14: Inflation in the consumer price index (CPI) logged in a rate of 2.7% year-on-year in April, slowing down slightly from 3.0% y/y in March. The cool down in inflation was mostly attributed to the ongoing slowdown in food inflation as well as a fall in core (i.e. excluding food) inflation. Core inflation fell from 2.8% y/y to 2.6% y/y in April, and inflation excluding both food and housing also continued to decelerate into April. However, food prices are expected to climb later this year, which along with a projected rise in core pressures (especially in the housing sector and its related components), are set to pressure the overall inflation rate up, toward  3.0%.

Food price inflation slowed down from 3.6% y/y in March, to 2.9% in April. Food price inflation has remained on a downward trend since the middle of last year. Until recently, CPI’s core components were on the rise and the downward trend in food inflation helped keep the overall inflation rate in check. In April we saw core inflation also slow down; and excluding both food and housing, CPI inflation decelerated again in April, to 1.6% y/y from 1.9% y/y in March. However, the recent rise in international food prices may subsequently push domestic food inflation up, at least for some time.

Inflation in the biggest component of the CPI — rented housing - came in at 4.6% y/y, almost unchanged from March. Note that the housing component is surveyed/updated only once every three months. Housing rental inflation is currently just 0.2% shy of the peak rate seen last October. Pressures in the three other major components of the CPI — clothing, furnishing and ‘other goods & services’ appear to have subsided of-late. Inflation in the clothing component took a slight dip in April, whilst both the furnishing and ‘other’ (which remains in decline) segments witnessed some stabilization.

Clothing inflation slowed down from 3.3% y/y in March to 2.9% y/y in April, and the furnishing inflation figure stood almost unchanged at 4.9% y/y. However, the robust level of activity in the housing sector is expected to drive this figure higher.  With housing inflation expected to remain firm, overall inflation is expected to edge toward 3.0%. In the meantime domestic food inflation is expected to climb somewhat, given the recent trend in international food prices, and so is the furnishing component, given its rather strong correlation with housing inflation.  Headline inflation is thus expected to average near 3.0% in 2014.

By National Bank of Kuwait

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