Kuwait in­fla­tion jumps in wake of petrol price hike

NBK ECO­NOMIC UP­DATE

Kuwait Times - - FRONT PAGE -

KUWAIT: In­fla­tion in con­sumer prices jumped in Septem­ber on the back of the fuel price hike dur­ing the month. Head­line in­fla­tion rose to 3.8 per­cent year-on-year (y/y) from 2.9 per­cent in Au­gust. Ex­clud­ing the in­crease in fuel prices, the rate of in­fla­tion re­mained rel­a­tively steady at around 3.0 per­cent y/y. For the month CPI jumped 1 per­cent, it would have been flat to down with­out the rise in fuel prices. Food in­fla­tion con­tin­ued to be soft thanks to de­clin­ing in­ter­na­tional food prices. In­fla­tion in hous­ing ser­vices, mostly hous­ing rents, sta­bi­lized in Septem­ber af­ter trend­ing up­wards for al­most a year, in tan­dem with weak­ness in the real es­tate mar­ket. We ex­pect head­line in­fla­tion to log in an an­nual av­er­age in­fla­tion rate of 3.4 per­cent in 2016, just marginally higher than the 3.3 per­cent read­ing in 2015.

In­fla­tion in lo­cal food prices re­mained weak in Septem­ber as global food prices de­clined fur­ther, com­ing in at a mere 0.8 per­cent y/y dur­ing the month. Ac­cord­ing to the Com­mod­ity Re­search Bureau, in­ter­na­tional prices of com­mod­ity foods fell for the third straight month in Septem­ber, de­clin­ing by 6.7 per­cent y/y. In­fla­tion in non-durable goods wit­nessed a spike in Septem­ber on the back of the hike in fuel prices. The seg­ment had been trend­ing lower since the be­gin­ning of 2016 in-line with softer food price growth. We ex­pect non-durable goods in­fla­tion to sub­side once again as the ef­fect of the one-off hike on fuel costs fades.

In­fla­tion in hous­ing ser­vices saw its weak­est month-on-month in­crease in over three years 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 monthly (and quar­terly) in­crease was up by a mere 0.1 per­cent, re­flect­ing a softer hous­ing mar­ket. 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 slowed in Septem­ber. In­fla­tion in the fur­nish­ings & house­hold seg­ment eased from 3.0 per­cent y/y in Au­gust to 2.1 per­cent y/y in Septem­ber. Cloth­ing & footwear in­fla­tion slowed from 1.3 per­cent y/y to 0.8 per­cent y/y dur­ing the same pe­riod as the up­ward pres­sures stem­ming from the sum­mer hol­i­day sea­son and prepa­ra­tions for the new aca­demic year sub­sided.

In­fla­tion in the ‘other goods & ser­vices’ cat­e­gory sta­bi­lized in Septem­ber. In­fla­tion in this seg­ment, which is mostly com­prised of im­ported goods, such as per­sonal care prod­ucts and jew­elry, stead­ied at 1.8 per­cent y/y in Septem­ber, per­haps on the back of sta­bi­liza­tion in gold prices dur­ing the same month. In­fla­tion in the trans­porta­tion sec­tor surged in Septem­ber both due to di­rect and spillover ef­fects of the fuel price hike dur­ing the same month.

Af­ter slow­ing since at least 2009 due to softer growth in both car prices and air­fares, in­fla­tion in trans­porta­tion costs re­bounded, jump­ing to 10.6 per­cent y/y from a de­cline of 1.9 per­cent y/y in Au­gust. 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) and op­er­a­tion of per­sonal trans­port equip­ment higher. We may con­tinue to see some up­ward in­fla­tion­ary pres­sures in this seg­ment in the short to medium-term as we see more trans­port ser­vices read­just their prices to re­flect the fuel price in­creases.

Whole­sale price in­fla­tion ac­cel­er­ated in the third quar­ter of 2016 af­ter in­fla­tion in both the min­ing & quar­ry­ing and man­u­fac­tur­ing (oil re­lated) sec­tors gath­ered mo­men­tum. Whole­sale price in­fla­tion ac­cel­er­ated from 1.3 per­cent y/y in 2Q16 to 2.8 per­cent y/y in 3Q16, as in­fla­tion in the min­ing & quar­ry­ing and man­u­fac­tur­ing seg­ments gained trac­tion fol­low­ing the fuel price hike. Price growth in the man­u­fac­tur­ing seg­ment (pri­mar­ily oil re­lated) rose from 1.4 per­cent y/y in 2Q16 to 3.1 per­cent y/y in 3Q16, mostly due to higher in­fla­tion in the lo­cal man­u­fac­tur­ing sec­tor, which re­bounded and jumped to 4.6 per­cent y/y dur­ing the same pe­riod.

In­fla­tion in the whole­sale price in­dex may con­tinue to see some up­ward pres­sures from the man­u­fac­tur­ing sec­tor in the near to medium-term. How­ever, the on­go­ing weak­ness in the agri­cul­ture, live­stock & fish­ing prices may help cap some of that up­ward in­fla­tion­ary pres­sure. This could help keep any sig­nif­i­cant in­fla­tion­ary gains in the con­sumer price in­dex at bay over the medium term.

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