Inflation in the consumer price index (CPI) edged down to 2.6% year-over-year (yoy) in November, from 2.7% in October, the National Bank of Kuwait weekely report stated Saturday.
This small move masked some notable changes within the sub-components: another sharp fall in food price inflation was almost offset by a rise in 'core' price pressures. It is expect that core pressures to continue to edge higher; however, the overall inflation rate is still forecast to average a modest 3.0% through 2014, up from 2.6% in 2013.
The report noted that food price inflation fell to 2.4% yoy from 3.5% in October, its sixth consecutive monthly decline. Given the component's large weight in the CPI (18%), this move subtracted some 0.2% points from the overall inflation rate in November.
Food price inflation has fallen from a peak of 6.3% yoy in May, more than accounting for the deceleration in inflation overall over the period. Though driven by softer international food prices, the decline in CPI food price inflation has been sharper than the historical relationship would suggest.
On the other side, 'core' inflation (i.e. excluding food) rose to 2.7% o/y from 2.5% in October, but the underlying picture was also mixed. The figure was heavily affected by a sharp rise in inflation in the clothing and footwear segment, which jumped to 1.4% yoy from -0.8% in October. Excluding this, 'core' inflation would have been unchanged. The increase was driven by a combination of a strong year-on-year base effect, and a sizeable 0.7% month-to-month rise in November 2013. Still, clothing inflation was very weak through 2013, and remains well below its average of 5% yoy or so of previous years.
The inflationary impact on the 'core' segment, however, was partially mitigated by an intensification of deflation in the 'other goods and services' component, to -1.7% yoy from -0.5% in October.
The turnaround in inflation in this category has been precipitous: it stood at +6.3% yoy in November 2012. The decline - and ultimate reversal - of price pressures in the segment has been driven largely by a base effect generated by the price of jewelry. Jewelry prices (mostly gold) surged in mid-2012, but those increases have since fallen out of the annual comparison. Prices have indeed edged lower.
Elsewhere, inflation in the housing services component (largely rents) remained relatively high, at 4.7% yoy. They have picked up considerably over the past year, rising from a low of 1.0% yoy in November 2012.
Price changes in this segment are only surveyed once every three months, and the next change is due in the December data. December 2012 saw a sharp 3.
2% month-to-month jump, so a more modest increase this time around would see the yoy rate fall quite sharply. Given the housing component's large weighting in the CPI, this could provide the context for a meaningful near-term decline in the overall headline inflation rate.
It is expected that inflation would edge higher through 2014 and perhaps crossing the 3.0% yoy mark around mid-year, as some of the factors - such as soft food prices and other base effects - that have been keeping inflation low start to unwind. Nevertheless, with economic growth still moderate and regional price pressures muted, inflation is unlikely to rise too far over the medium-term.