Inflation in the Gulf is expected to creep higher this year on robust global commodity prices, a weak dollar and increased government spending.
In Kuwait, inflation had been hovering above 5.0 percent since reaching almost a two-year high of 6.0 percent in December 2010, though it subsided to 5.0 percent in June.
On the month, consumer price growth slowed to 0.1 percent in July from 0.2 percent the previous month, data from the country’s Central Statistics Office showed.
“The July reading confirms a very benign inflationary situation, with prices essentially unchanged compared with June,” said Liz Martins, senior MENA economist at HSBC in Dubai.
“The August number could come in higher, thanks to the Ramadan effect, but the underlying picture is of very low level price growth,” she said.
Food prices usually rise during Ramadan.
Kuwait has one of the highest annual inflation rates in the Gulf, second only to Saudi Arabia’s 4.9 percent in July, although price growth remains well below a record high of 11.6 percent seen during an oil-fueled boom in August 2008.
Analysts polled by Reuters in June expected average inflation in the world’s No. 6 crude exporter to reach 5.1 percent in 2011 after 4.0 percent last year.
In July, food costs, which account for 18 percent of Kuwait consumer expenses, rose by 0.2 percent on a monthly basis after a 0.6 percent drop in the previous month, the data also showed.
Transport and communication prices rose 0.1 percent month-on-month, cooling down from a 1.0 percent jump in June. Housing costs, which make up 27 percent of the basket, were unchanged for the fourth month in a row in July.
“There is significant oversupply in housing in both the UAE and Qatar that is helping subdue inflation. But in Kuwait they don’t have that kind of oversupply in the housing market,” said Shady Shaher, senior economist at Standard Chartered in Dubai.
Kuwait’s central bank governor was quoted in June as saying interest rates were at a suitable level, and a dinar peg to a basket of currencies was helping to curb inflation, mostly driven by rising import costs.
Slowing global economic growth and sovereign debt problems in the euro zone are affecting bigger economies like Italy and Spain, while emerging markets are also struggling to contain inflation.
“The main risk for Kuwait would be an exogenous factor which would be a double-dip recession that would subdue demand for oil,” Shaher said.
The $131 billion economy of Kuwait, which abandoned its dollar peg in 2007 to rein in soaring inflation, is seen growing by 4.4 percent this year, helped by robust crude prices and increased government spending after an estimated 3.0 percent growth in 2010.
