Most components of the cost of living index rose in February, owing to strong domestic demand. Most significantly, rents rose again. At 9.3 percent, rental inflation was at its highest since May 2010.
"This increase is the result of rising disposable incomes among the national population; specifically some of those with jobs or new sources of income from government programs may be entering the rental market, or at least landlords are raising rents on the assumption that this will happen. At the same time, additions to the supply of housing continue to be small," Paul Gamble, head of research, at Jadwa Investment, said.
However, he pointed out that work on new housing construction is picking up, but it will take some time for this to reach the market.
Food prices, the largest item in the cost of living index, recorded the biggest gain in year-on-year terms in February, rising to a six-month high. The rises were concentrated in the prices of fresh foods, which may reflect higher costs or reduced supply of products originating in or transiting through Syria, Jadwa said in its inflation report yesterday.
The jump in rents in monthly terms was much less than in January, and broadly in line with February readings in recent years. Nonetheless, the rise in rental inflation over the past three months (2.4 percent) is higher than for any three-month period since mid-2009. Fresh fruit and vegetables, eggs and fish were the main source of the jump in food prices; prices of watermelons and pomegranates were up by more than 10 percent in February. Most other components of the cost of living index were either stable or up slightly in February.
Commenting on the new inflation report, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: "The basic outlook for inflation this year remains more or less flat, although it is to a degree subject to still considerable global economic uncertainty. A gradual stabilization in combination with loose monetary policy would boost commodities whereas economic discontinuities would probably mean at least a temporary respite for food and energy prices."
He said the purely domestic price pressures are likely to persist due to housing shortages that the current investment plans, as massive as they are, can only hope to address with time. Economic optimism is clearly improving after a landmark year in terms of growth and the fairly loose fiscal stance contain any meaningful downward potential for prices.
"The main source of relief is the slightly stronger dollar, which is curbing imported inflation. I would expect inflation for the year as a whole to land in the neighborhood of 5 percent, continuing the recent trend," Kotilaine added.
