KUWAIT: Inflation in consumer prices eased to 2.8% year-on-year (y/y) in May, mainly due to softer food inflation. Core inflation (which excludes food prices) came in marginally higher at 3.0% y/y during the same period. We expect annual average inflation in 2016 to moderate to 3.0% compared to 3.3% in 2015, on the back of low commodity prices and a stronger local currency. Inflation in local food prices maintained its downward trend in May.
Local food inflation slowed to an over one-year low of 2.1% y/y in May. We expect growth in food prices to remain soft on the back of falling international food prices. According to the Commodity Research Bureau, inflation in international food prices slipped back into negative territory in May, with prices falling by 1.3% y/y. This has also led to softening inflation in non-durable goods, which slowed from 2.1% y/y in April to 1.8% y/y in May. Inflation stabilized in furnishings & household maintenance and clothing & footwear. Inflation in furnishings steadied at an eight-month high of 3% y/y in May.
Clothing & footwear prices continued to fall, albeit at a modest rate of 0.1% y/y. The stronger dinar and more frequent and longer seasonal promotions have driven costs lower in this segment. Inflation in durable and semi-durable goods as a whole remain slow. Inflation in durable goods and semi-durable goods came in at a mere 0.8% y/y and 0.6% y/y, respectively. The inflationary trends in the ‘furnishings’ and ‘clothing’ segments are good gauges of the inflationary trends in durable goods and semi-durable goods. They have almost been moving in tandem with each other.
Inflation in the ‘other goods & services’ segment rose in May, but still remained relatively subdued. This component, which is mostly comprised of imported goods such as personal care products and jewelry, has been seeing lower imported inflation on the back of a stronger local currency.
Inflation in overall services, especially in services ex-housing, has largely stabilized recently, but continues to face downward pressures. Inflation in services, which is predominantly driven by housing rent inflation, remains firm at 4.4% y/y. However, excluding the cost of housing, inflation in services is currently hovering at around 1.7% y/y.