Kuwait: In­fla­tion holds at 2.7% in May with mo­men­tum eas­ing

NBK ECO­NOMIC UP­DATE

Kuwait Times - - BUSINESS -

In­fla­tion in con­sumer prices stood pat at 2.7% year-on-year (y/y) in May, as in­fla­tion across most com­po­nents came in un­changed from April. Moder­at­ing growth in hous­ing rent and weak food in­fla­tion has led to lower over­all price growth in re­cent months. Mo­men­tum is ex­pected to re­main to the down­side, as a con­tin­ued de­cline in global food prices and a soft real es­tate mar­ket are seen keep­ing food and hous­ing in­fla­tion, re­spec­tively, in check.

Nonethe­less, hikes in elec­tric­ity and wa­ter tar­iffs dur­ing the sec­ond half of 2017 are ex­pected to put some up­ward pres­sure on in­fla­tion. The tar­iffs are sched­uled to in­crease from the cur­rent 2 fils to 3-5 fils per kilo­watt-hour (kWh) for the var­i­ous sec­tors. In May, the Min­istry of Elec­tric­ity & Wa­ter be­gan ap­ply­ing new util­ity tar­iffs in the com­mer­cial sec­tor. Tar­iffs rose from 2 fils to 5 fils/kWh and from KD 0.8 to KD 2per 1,000 im­pe­rial gal­lon of wa­ter. The in­creases in util­ity prices are ex­pected to push in­fla­tion up slightly from cur­rent rates to an an­nual av­er­age close to3% in 2017.

In­fla­tion in food prices re­mained flat in May amid a con­tin­ued de­cline in global food prices. Lo­cal food prices were flat at0.1% y/y in May and ac­cord­ing to the Com­mod­ity Re­search Bureau, in­ter­na­tional prices of com­mod­ity foods were down by 5.1% y/y dur­ing the same pe­riod. In­fla­tion in hous­ing ser­vices re­mained un­changed in April. In­fla­tion in the hous­ing com­po­nent, mostly com­prised of hous­ing rents and up­dated quar­terly, slowed from6.4% y/y in 4Q16 to a three-year low of 4.3% y/y in 1Q17, in­line with some soft­ness in the hous­ing mar­ket.

In­fla­tion in the re­tail sec­tor re­mained soft against a back­drop of sub­dued con­sumer de­mand. Cloth­ing & footwear prices con­tin­ued to de­cline in May amid soft con­sumer de­mand. Car price in­fla­tion came in flat at 0.1% y/y. In­fla­tion in “other goods & ser­vices” re­mained weak on the back of lower gold in­fla­tion, while in­fla­tion in the fur­nish­ings & house­hold main­te­nance com­po­nent sta­bi­lized at 2.9% y/y.

In­fla­tion in ser­vices ex­clud­ing hous­ing held steady at a multi-month high of 2.4% y/y in May. In­fla­tion in both trans­porta­tion ser­vices and the restau­rants & ho­tels seg­ment re­mained rel­a­tively el­e­vated at 12.3% y/y and 4.5%, re­spec­tively. Trans­port ser­vices con­tinue to read­just their fees to ac­count for the higher fuel charges that were im­ple­mented back in Septem­ber of 2016. In May, in­fla­tion in this seg­ment stood at a com­par­a­tively high 3.2% y/y.

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