Kuwait's annual inflation slowed to a ten-month low of 5 percent in June helped by a fall in food prices, data showed yesterday, but generous government spending is expected to keep levels above those of neighbors this year. Inflation in the world's fourth-largest oil exporter has been hovering above 5 percent since the beginning of this year, well below double-digit levels seen in 2008.
It stood at 5.4 percent year-on-year in May, after climbing to a nearly two-year peak of 6 percent in December. On a monthly basis, consumer prices in the OPEC member grew 0.2 percent in June, according to data from the Central Statistics office. That was below a 0.3 percent rise in May.
Inflation in the Gulf, the world's top oil exporting region, is expected to creep higher this year on robust global commodity prices, a weak dollar and increased government spending following popular unrest in the Arab world. But slow lending growth and ongoing weakness in the property sector in parts of the region are seen keeping consumer price growth well below the record peaks seen in most Gulf states in 2008, despite oil prices above $90 per barrel.
In Kuwait, food costs - which account for 18 percent of the consumer basket - fell for the first time in four months, by 0.6 percent month-on-month, the data showed. "Kuwait has one of the highest inflation rates in the GCC for the year. But it's still not anywhere near of what we saw three years ago," said Nancy Fahim, Standard Chartered economist in Dubai. "One of the big drivers of inflation this year is government spending and their cash packages that they have provided their citizens, which should be
driving overall headline inflation.
Last month, Kuwait's parliament approved a 19.4 billion dinar ($71 billion) state budget for the 2011/12 fiscal year, the biggest since at least 2003. Kuwait announced in January plans to spend nearly $5 billion, or more than 4 percent of its GDP, on cash grants and free food rations. Transport prices, which makes up 16 percent of the CPI basket, increased by 1 percent month-on-month in June after remaining unchanged for three consecutive months, the data showed. Analysts polled by Reuters in June expect a
verage inflation of 5.1 percent in 2011.