Kuwait consumer price inflation eases in 4Q19, but ends 2019 up

Food inflation gathers pace, housing costs continue to fall

KUWAIT: Consumer price inflation eased in 4Q19, ending the quarter at a low 1.5 percent y/y versus 1.7 percent at the end of Q3. On an annual average basis, however, inflation rose to 1.1 percent in 2019 from just 0.6 percent in 2018 and in line with our expectations. The pick-up in average inflation last year was led by a rise in ‘core’ inflation (which excludes food and housing) to 2.4 percent from 1.9 percent, spurred by solid consumer spending and by a faster pace of increase in transportation costs. As for the ‘non-core’ components, while food prices gathered pace in 2019, housing costs remained in decline due to continued weakness in rents.

Food price inflation stood at 1.8 percent y/y in December (close to a multi-year high) and unchanged from the end of the previous quarter. On an annual average basis, food price inflation leapt from a mere 0.1 percent in 2018 to 1.1 percent in 2019, mostly driven by a jump in prices in the volatile fish and seafood category. Global food prices remained largely soft and could keep local food prices in check, which are also subject to subsidies and price controls.

In contrast, housing costs declined at a steady pace of -0.9 percent y/y in December 2019, though the rate of deflation appears to be bottoming out. Prices in this segment - which are only reported every three months - were flat quarter-on-quarter for the second consecutive quarter. This may be indicative of some stabilization in the housing component, which has seen multiyear weakness due to oversupply in the apartment market. However, given reports of high vacancy levels, moderate economic growth and the impact on housing demand of weak growth in expatriate numbers, it is too soon to predict that the housing costs segment has decisively turned a corner.

On an annual average basis, housing costs fell by 0.8 percent in 2019, albeit a slight improvement on the 1.1 percent decline seen in 2018.

Inflation in core components mixed in Q4 Core inflation came in at a solid 3.0 percent y/y in December, but slightly down from 3.2 percent in

September. Inflation trends across core components were mostly subdued during 4Q19. While inflation in miscellaneous goods rose from 2.1 percent at the end of Q3 to 2.6 percent (an over one-year high) at the end of 4Q19, inflation in most other core components were either broadly unchanged or fell. The strongest falls were in the education (down 1.0 percent to 2.9 percent), communication (down 0.9 percent to 4.5 percent) and transportation (down 0.6 percent to 3.9 percent) components. Meanwhile, inflation in clothing & footwear,

recreation and restaurants were almost unchanged.

Inflation to edge higher in 2020

Inflation is expected to pick up modestly to 1.5-2 percent in 2020 as downward pressure from the housing component eases while inflation in core components including clothing & footwear, household and miscellaneous goods remains firm, not least because of continued gains in consumer spending. However prices will be kept in check by modest growth rates and stable oil prices.