Kuwait’s inflation eases to 3.6 pct from one year high – Fuel price hike impact of Sept diminishes

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Inflation in consumer prices eased in October as the initial impact of the fuel price hike ebbed. Headline inflation edged lower from the one-year high of 3.8 percent year-on-year (y/y) in September to 3.6 percent y/y in October, as inflation in most components remained subdued or broadly steady. Inflation excluding the impact of the September fuel price hike has remained steady at around 3.1 percent y/y. Inflation in 2016 is expected to average only slightly higher than 2015 at 3.4 percent, thanks to downward price pressures from housing, food, and other imported goods. In 2017, inflation is expected to rise and average 4 percent on further hikes in regulated prices.

After surging in September on the back of the fuel price hike, inflation in the transportation sector appears to have steadied somewhat, at least for now. After slowing since at least 2009 due to softer growth in both car prices and airfares, inflation in transportation costs rebounded in September, soaring to 10.6 percent y/y, and kept steady at 10.4 percent in October. The jump came on the back of a 52 percent y/y surge in fuel & lubricant prices, which in turn pushed the costs of transport services (taxi fares in particular) higher. While prices in this segment appear to have broadly steadied in October, we may still see some upward pressures in this segment in the short to medium-term as transport services readjust their prices to reflect the fuel price increases.

Inflation in local food prices maintained its softness in October, after it came in at a mere 0.7 percent y/y. The segment continued to be weighed down by declining global food prices. According to the Commodity Research Bureau, international prices of commodity foods slid deeper into deflationary territory after falling by 9.2 percent y/y during the same period. Inflation in housing services eased notably in 3Q16 amid a cooling real estate market. After trending upwards for almost a year, housing inflation, which is comprised primarily of housing rents and is updated quarterly, steadied, at a still high, 7.4 percent y/y in September. However, the 3Q16 increase was a mere 0.1 percent, its weakest pace in over three years. We expect the momentum in housing inflation to continue to ease in the near-to-medium term.

Inflation in both furnishings & household maintenance and clothing & footwear remained subdued in October. Inflation in the furnishings & household segment held steady at 2.1 percent y/y, while inflation in clothing & footwear prices slipped back into negative territory for the first time in five months. The softness in this sector may be due to some weakness in the consumer sector.

Inflation in the ‘other goods & services’ category ticked downwards. Inflation in this segment, which is mostly comprised of imported goods, such as personal care products and jewelry, eased to 1.5 percent y/y in October. The slowdown in this segment could be explained by the ease in gold price inflation.

By National Bank of Kuwait

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