Kuwaiti Inflation to remain modest through 2013

Inflation in the Consumer Price Index (CPI) reached 2.1 percent year-on-year (y/y) in October, up from 1.9 percent in September, said a report issued here today by the National Bank of Kuwait (NBK). The uptick was due to modest rises in the clothing, and transportation and communication segments. More broadly, however, inflation in the general index continues to be subdued. Core inflation, which excludes food and beverage prices, stood at just 1.5 percent y/y in October, said the report Kuwait Economic Brief. Food prices went up3.8 percent y/y in October, unchanged from the September rate. As for sub-components, price increases for meat, poultry, and fish - previously a major source of food price inflation - have slowed considerably in recent months, with fish prices seeing deflation for the past two months. Food price inflation remains well below its recent peak of 10 percent recorded in March. The price level for housing services (mostly rent), rose 0.7 percent y/y, also unchanged from September. Low inflation in this component - which is the largest at 27 percent of the general index - has been a source of downward pressure on the CPI. The housing services segment is the only sub-component to be updated on a quarterly, rather than a monthly, basis. Yet, the stickiness of prices in this segment goes beyond that; the price level has been flat or near-flat for the past 11 months. Clothing and footwear prices were sup 3.1 percent y/y, compared to 2.7 percent in September. The increase came largely from a 4.0 percent y/y increase in readymade garments prices. Elsewhere, the inflation rate in most segments remained below the two-percent mark. The household goods and services segment saw one of the lowest increases in prices, rising a mere 1.1 percent y/y. Transport and communication prices saw a 1.7 percent increase, with the price of saloon cars going up by 2.0 percent. Until September, the latter hadn't budged in 14 months. The educational and medical care sector saw a similar 1.7 percent uptick, below its 2.4 percent average so far for the year. Inflation has come in below expectations in the 2nd half of the year, due to lower-than-expected food price inflation, as well as subdued rates in other segments. It is now expected to average 2.9 percent for 2012 as a whole. Despite some potential upside pressures - the strength of consumer spending, and volatility in international food prices and exchange rates, for example - it is expected that inflation will remain modest through 2013, averaging 3.5 percent.