Despite this small rise in inflation, price growth in the region is below the global average of around 4.5 percent and well below the 13.8 percent average that QNB capital estimates for the rest of the MENA region.
Part of the reason for the relatively subdued inflation relative to other countries is fuel subsidies. These subsidies have insulated the region from the direct impact of the sharp increase in oil prices, which has seen the benchmark Brent crude rising by 39 percent on average in 2011, even more than the 34 percent increase in 2008.
Instead, the strongest contribution to inflation in the GCC last year came from rising food prices, driven by shortages in the first half of the year which saw a 23 percent average rise in the UN Food & Agriculture Organization's benchmark index of basic food prices. Rents saw declines in three of the countries, but increases in the others. In most other price categories, such as communications, there were only mild rises across most of the region, the QNB Capital report said.
QNB Capital's assessment utilizes the full year consumer price index (CPI) data for five countries and an estimate for Oman, based on its data until November 2011. The regional inflation figures have been calculated by weighing inflation in each country against their estimated shares of regional GDP.
The GCC countries each use slightly different baskets of goods and services in their CPIs, based on household spending surveys, categorize and weigh them differently in the total index.
The three most important categories of prices across the region, collectively representing two-thirds of the CPI, are housing (including utilities), food & beverages and transport & communications. Regional growth in these categories was 2.3 percent, 5.7 percent and 2.7 percent respectively.
Housing costs fell sharply in Bahrain, by 12.4 percent, and also in Qatar, by 4.8 percent, and the UAE, continuing the trend of the last few years as their housing markets adjusts from the 2008 peak. However, prices rose moderately in Kuwait and Oman, and by 7.7 percent in Saudi Arabia, where a substantial shortage in housing is still prevalent.
Food prices are driven by a mixture of global markets, subsidies and domestic demand. Bahrain saw the most moderate increase, of 2 percent, and Kuwait the fastest, at 9.6 percent.
Price inflation in the transport & communications category tends to be very moderate in all GCC countries. This is a consequence of fuel subsidies and a long running trend of downward market pressure on telecom prices as GCC markets have opened up to competition. Qatar saw the highest rise, of 6.4 percent, largely as a result of the increase in fuel prices implemented at the beginning of the year.
Looking into 2012, QNB Capital forecasts a continuation of moderate inflation for the region. While rents are expected to return to positive growth in most countries, this should be offset by an expected easing in food price inflation.
