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KUWAIT: Inflation in consumer prices edged higher in August, rising from 3.6% year-on-year (y/y) in July to 3.8% y/y, mainly on the back of strong gains in food inflation. Inflation across all other components either retreated or remained unchanged. Core inflation (excludes food) eased for the first time in almost a year, but still remains relatively high at 3.4%. Core inflation has been relatively steady in recent months as inflationary pressures from its components, with the exception of housing, have receded. Slowing inflation in most components and a stronger dinar against major currencies (excluding the US dollar), are expected to limit any further gains in headline inflation. Subsequently, annual consumer price inflation is forecast to average close to 3.5% in 2015.

Inflation in food prices jumped from 4.1% y/y in July to 5.6% y/y in August, though global food prices continued to decline. Local food inflation was driven higher by sharp increases in fish prices. Fish and seafood prices rose by 20% y/y in August, up from a rise of 14.5% y/y in July. However, inflation in this segment is expected to slow in the near-term after a local boycott was organized against the exuberant price hikes, forcing prices down. With international food prices still declining, upward pressures on local food inflation will be limited over the coming months. According to the Commodity Research Bureau global commodity index, international food prices were down by around 15% y/y in August.

Housing services

Inflation in housing services has been an important source of inflationary pressure over the last 12 months, though we expect that pressure to ease. The housing component rose to a six-year high of 6.5%y/y in June. However, after witnessing strong gains in 4Q14 and in 1Q15, housing inflation, which is mostly comprised of rents, is expected to ease in the coming months.

Inflation in clothing & footwear, and furnishings & household maintenance continued to trend lower in August. Clothing & footwear inflation fell further in August, declining by 1.8% y/y. Inflation in this component is witnessing a large correction, following a high base around the same period last year. Another factor contributing to the downward trend is the stronger dinar (most goods in this component are imported). Inflation in furnishings & household maintenance also eased, slowing from 4.2% y/y in July to 3.8% y/y in August.

Inflation in the 'other goods & services' segment maintained its downward trend in August. Inflation in this segment, which includes prices of personal care products and jewelry and certain business charges, is currently seeing some downward correction. The slowdown can also be attributed to the stronger dinar, since most of the items in this segment are imported.

Hike in seafood

Wholesale price inflation has been rather steady since the beginning of 2015, amid stable manufacturing costs and slowing mining & quarrying inflation. The most recent data on wholesale price inflation showed a slight easing to 3.4% y/y in June on moderating pressures from the manufacturing, and mining & quarrying components. Some of this was offset by upward price pressures in agriculture, livestock & fishing inflation during the summer months. There was a jump in the latter attributable mainly to hikes in fish & seafood prices. Here again, price rises are expected to ease following the boycott organized in August against high fish prices. We expect inflation in the agricultural component to soften over the coming months. Easing wholesale price inflation is a further reassurance that inflation in the consumer price index is poised to remain in check and average close to our 3.5% in 2015.