Kuwait inflation remains at 3.4%; components steady

NBK ECONOMIC REPORT

Inflation in consumer prices eased for the second consecutive month in November. Headline inflation came in at 3.4 percent year-on-year (y/y), versus the 3.6 percent reading in October, as inflation in most components slowed or remained broadly steady. Core inflation, which excludes food prices, also subsided but remained at a multiyear high of 4.2 percent y/y.

Inflation in 2016 is expected to average around 3.4 percent. Price growth was mostly unchanged from the 2015 pace as the effects of higher fuel prices were largely offset by downward price pressures from housing, food and other imported goods. In 2017, inflation is projected to climb to 4 percent as the government introduces higher electricity and water tariffs from May 2017.

Inflation in the transportation sector appears to be holding steady for the time being. Inflation in this segment jumped to around 10 percent y/y in September and has remained steady around that mark in October and November. The jump stemmed from the 50-60 percent hike in fuel prices that month, which pushed transport service costs (taxi fares in particular) higher. We may see some upward pressures in this segment in the short to mediumterm as transport services readjust their prices to factor in the fuel price increases. Inflation excluding fuel prices remained broadly stable at around 3 percent. Also note that car prices fell on the month and were down 1.8 percent y/y.

Food prices ease

Inflation in local food prices maintained its weakness in November. At 0.2 percent y/y, inflation in this segment has been weak as global food prices receded further into deflationary territory. According to the Commodity Research Bureau, international prices of commodity foods fell by 9.7 percent y/y during the same period.

Inflation in housing services has eased markedly 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 per- cent, 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 the retail sector continued to be weighed down by softer consumer demand and a stronger dinar. This was reflected in the furnishings & household maintenance, clothing & footwear and other goods & services segments. Inflation in the furnishings & household segment was unchanged at 2.1 percent y/y in November, while clothing & footwear price inflation fell at a faster pace of 1.1 percent y/y. Inflation in the ‘other goods & services’ category, which is mostly comprised of imported goods, such as personal care products and jewelry, receded for the second straight month in November, to 0.9 percent y/y.

Both inflation in services and services exhousing ticked up slightly in November, on the back of a marginal pick up in restaurants & hotels inflation. Inflation in services came in at 4.9 percent y/y and after trending lower for the bulk of 2015 and 2016 inflation in services exhousing rose from 0.9 percent y/y in October to 1.1 percent y/y in November.