Tuesday, July 7, 2015

NBK’s economic update reports Kuwait inflation at 3.3% in May

Amid a slowdown or stabilization across all components except healthcare and local food, inflation in the consumer price index (CPI) inched down from 3.4 percent year-on-year (y/y) in April to 3.3 percent y/y in May. Although relatively low, local food inflation climbed at a gradual pace for the third consecutive month. Local food inflation is expected to remain soft in the second half of this year with the International food prices declining as well. In order to limit any significant inflationary gains, the stronger dinar is also projected. The average annual inflation rate is forecast to close to 3.5 percent in 2015.

Core inflation (CPI excluding food items) eased for the second consecutive month in May, from 3.7 percent y/y in April to 3.5 percent y/y. Core inflation is seeing some reprieve because of subdued inflation across most components. Housing inflation is also expected to ease modestly in the near-to-medium term which will help keep core inflation in check. Inflation is off and now under 2 percent y/y excluding housing (and food).

Global food prices declined by 17.5 percent y/y and Inflation in the local food price index edged up from 2.3 percent y/y in April to 2.6 percent y/y in May. The rise in local food inflation may be due to the increased demand in the run-up to the holy month of Ramadan in June.

Local Food inflation will remain soft in the second half of 2015 because international food prices are still declining. Inflation in housing services remained unchanged from April at 6.3 percent y/y. This inflation component is updated once every quarter with the next update due in the June report.

Due to healthy demand levels, Housing inflation rose to an almost six-year high in March though it is expected to subside later in 2015. Clothing and footwear inflation declined by almost 1 percent and furnishing and household maintenance inflation remained comfortable. Since most of the products in this segment are imported and the dinar has remained strong the inflation is trending lower for a year. The inflation of 'other goods and services' was down to 2.4 percent y/y in May from 2.7 percent y/y in April.

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