A report by Kuwait Finance House (KFH-Reserach) predicted, Sunday, that the inflation rate in Kuwait is expected to be at 3.5 percent in 2014.
The report noted that the inflation rate in Kuwait increased to 2.6 percent in November on a monthly bases, while it dropped year over year (y-o-y).
Consumer prices in Kuwait moderated further to 2.6 percent y-o-y in November 2013, a tad lower than 2.7 percent y-o-y growth recorded in October 2013 due to lower food and beverages prices.
Kuwait's inflation rate has previously touched 3.0 percent-level in May and June 2013 following high food demand in preparation for Ramadhan during that month and increasing housing rentals.
Overall, inflation has averaged 2.7 percent y-o-y in January to November 2013, in line with our 2013 inflation forecast of 2.8 percent y-o-y.
As it is expected, the moderating inflation rate in Kuwait in November 2013 was due to lower food and beverages prices. During the month, food costs continued to soften to 2.4 percent y-o-y, much lower than 3.5 percent y-o-y increase recorded in the previous month.
Details showed most of the food sub-category declined in November 2013 led by fresh and frozen fruits (-1.5 percent); fresh, chilled and frozen vegetables (-1.4 percent); as well as meat and poultry (-0.4 percent). Meat and poultry and fish and seafood prices constitute about 50.7 percent and 19.7 percent of the food and beverages price index, respectively.
As Kuwait imports most of its food items (approximately 90.0 percent) for domestic consumption, it is expected that food price inflation in Kuwait will remain low in the near term, in tandem with declining trends in international food prices. In November 2013, the FAO Food Price Index dropped 4.4 percent y-o-y.
In addition to food, Health care and the "miscellaneous goods and services" category also contributed to the decline in inflation, declining by 0.5 percent y-o-y and -1.2 percent y-o-y, respectively.
On the upside, prices of furnishing equipment household maintenance remained high at 4.6 percent y-o-y in November 2013, the same rate as in October 2013. The report noted that the price in this category has grown significantly as it used to hover around 2.2 percent - 2.8 percent in April 2013 to August 2013, due to rising rental costs.
Despite the recent price moderation, accommodative monetary and loose fiscal policy should underpin domestic demand, driving price pressures. Recent credit data released by the Central Bank of Kuwait (CBK) indicate significant growth in private credit, up by 7.7 percent y-o-y in October 2013, compared with 6.1 percent y-o-y in September 2013 and an average of 4.0 percent in 2012, the strongest growth since 2009. This has been largely driven by the robust growth in lending to households and the real-estate and construction sectors.