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Government support, strong dinar dent impact of inflation

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KUWAIT CITY, July 23: The inflation rate in Kuwait has risen to record levels, the highest in years, and is similar to the rest of the world’s economies where the consumer price index has risen to historical levels, reports Al-Anba daily. But despite this, inflation levels in Kuwait remain at 4.7%, much lower compared to inflation levels in Western economies, which exceeded 9%, as in the United States, for example.

The reason for this difference is due to subsidies, especially fuel subsidies, which are reflected in the prices of other goods and services, in addition to the strength of the Kuwaiti dinar against the US dollar, in addition to Kuwait’s trade surplus thanks to record increases in oil prices. The difference in inflation rates also explains one of the factors on which the Central Bank of Kuwait relied in its decision to raise interest rates, but at rates lower than the US Federal Reserve.

The inflation rate in Kuwait rose by 4.7% on an annual basis during April, after it recorded a rise of 0.16% on a monthly basis. The sectors of education (+18.95%) and food and beverages (+9.13%) topped the rise in the inflation rate in Kuwait, while the impact of subsidies on other sectors such as transportation (+4.82%) and health (+1.7%) was evident.

The price of a liter of gasoline in Kuwait (95 octane) ranges around 105 fils (equivalent to about 0.3 to 0.4 US dollars), which is a fixed price. Despite the fact that the Kuwaiti dinar exchange rate was not fixed against the US dollar, the dinar maintained its strength against the runaway dollar strongly throughout the last period, which significantly reduced imported inflation, especially in a country that relies on importing most strategic commodities, especially food. The Kuwaiti dinar exchange rate against the US dollar ranged between 302 and 307 fils throughout the first half of this year, reflecting the steadfastness of the Kuwaiti dinar against the dollar, while the US dollar index rose by about 8.1% since the beginning of this year compared to the main currencies, reaching 103.8 points compared to its levels of 96 points at the end of last year.

The Central Bank of Kuwait took its decision to unlink the Kuwaiti dinar from the US dollar in May 2007, when the dinar exchange rate was linked to a basket of currencies, in which the US dollar has a large share, without announcing the details of the relative weights of the currencies within that basket. Many countries, especially among developing and emerging economies, suffer from the lack of foreign exchange resources that help them import their needs amid the rising strength of the dollar and the shrinking supply of strategic commodities globally.

Preliminary data published by the Central Administration of Statistics showed a surplus in the trade balance for the year 2021 amounting to 9.4 billion dinars, after the value of exports amounted to 19 billion dinars, compared to imports amounting to 9.6 billion dinars. This is mainly due to the rise in oil prices, as the value of oil exports reached 17.4 billion dinars, and they account for more than 91.5% of the total value of exports.

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