• Global : Kuwait Inflation reported unprecedented level of 9.53% by the end of January 2008
Global Investment House – Kuwait Economic & Strategic Outlook – Inflation - Inflation, as measured by Consumer Price Index (CPI), has gone up to unprecedented level of 7.1% in the 4Q07 standing at 122.2 points. Such inflation level came on top of 3.03% reported by the end of 2006. It is important to note that inflation rates went through an increasing trend over the last four quarters. More importantly, was the higher inflation rates reported during the year 2007. On a M-o-M basis inflation picked up even much more rapidly to hit new records above 7.54% up to the end of December 2007 to stand at 124.1 points. Entering the year 2008, figures from Central Statistics office revealed inflation picking up even more to unprecedented record levels of 9.53% by the end of January 2008. According to the data CPI hit 126.4 points by the end of January 2008 as compared with 115.4 points a year ago. The increase was driven by the sharp rises in housing services by 16.1% and prices of beverages and tobacco by 15.1%.
Similar to last two years, the rise in inflation during 2007 was accompanied with excellent economic growth and it was led more by demand-pull rather than cost-push. External pressures stemming from increase in the cost of imported non-oil commodities also contributed to the higher inflation. Despite the strengthening of the KD against the US$ after adopting the new basket, the previous years saw depreciation of the KD against the major non-dollar currencies which continued to have a delayed impact on consumer prices. Other factors contributing to rise in inflation in 2007 were strong domestic consumer demand, associated with credit expansion, rising non-oil activity and the buoyancy of the stock market.
Inflation as measured by Consumer Price Index growth
Source: Central Bank of Kuwait
Analyzing inflation levels according to CPI different segments revealed that all segments reported increasing prices since 2004 and up to the end of 4Q07. Among CPI segments; prices of ‘Housing services, ‘Transport & Communication’ and ‘Education and Medical Care’ grew at higher rates in 2007. Accounting for the second largest weight in CPI index ‘Housing services’ index segment grew by 13.8% in 4Q07 to 123.3 points up from 108.4 points reported during the same period last year. It is important to note that this category include rentals that picked considerably during the last couple of years thus affecting general inflation levels.
Another important category would be ‘Food’ price index that accounted for the largest weight in CPI, it stood at 133.9 points by the end of 4Q07 that is 5.68% growth over the same period last year. ‘Transport & Communication’ segment as well has been reporting higher inflation rates during 2007. Prices within this segment stood at new landmark of 111.1 points by the end of 4Q07 reporting 4.12% of growth on top of 7.62% of growth reported for 3Q07. Such unprecedented inflation levels within this segment are to be compared with inflation levels of 0.9% and 1.89% for 2005 and 2006 respectively. Finally, prices of segments like ‘Beverages and Tobacco’, ‘Education and Medical Care’ grew at 12.58% and 11.04% respectively by the end of 4Q7.
Constituents of CPI (2000=100)
Categories 2001 2002 2003 2004 2005 2006 1Q2007 2Q2007 3Q2007 4Q2007
Food 103.1 104.5 106.6 110 119.4 124 129.6 127.4 128.6 133.9
Beverages & Tobacco 101.5 105.8 107.5 111.2 112.2 114.3 119.3 118.5 122.6 128.9
Clothing & Footwear 103.2 105.9 108 111 118.1 122.8 126.6 128 128 131.9
Housing Services 101.1 102.1 103.8 104.6 105.3 108 110.4 113.4 117.6 123.3
Household Goods & Services 96.9 99.1 100.3 96 99.5 102.2 103.7 105.1 106.1 108.2
Transport & Communications 99.1 95 93.8 99.8 100.7 102.6 109.6 110 110.2 111.1
Education & Medical Care 103.9 106.6 112.4 116.6 123.2 126.2 126 126.4 134.7 140.8
Other Goods & Services 106.2 108.5 105.7 102 110 115.3 117.4 117 119.3 119
General Index 101.3 102.2 103.2 104.5 108.8 112.1 115.7 116.5 118.7 122.2
Y-o-Y change 1.30% 0.89% 0.98% 1.26% 4.11% 3.03% 4.33% 5.05% 5.32% 7.10%
Source: Central Bank of Kuwait
Going forward, we expect CBK to manage its monetary and exchange rates policies in favor of controlling inflationary pressures and supporting the value of KD against other currencies to avoid imported inflationary pressures. The increase in the rate of inflation will also be constrained by government’s extensive subsidies on core goods and services.
