Inflation rises close to 12-year high in Kuwait

Kuwait's All Items Consumer Price Index climbed to 118 points at the end of July, compared with 112.4 points a year earlier, the data obtained by Reuters yesterday showed.

Inflation in July was 4.98 per cent, compared with 4.36 per cent in June. It rose above 5 per cent in March to a 12-year in April.

"It will be hard for the government to bring down inflation due to domestic factors such as housing costs," said Monica Malik, senior economist at EFG-Hermes investment bank. She expects inflation to range between 4 per cent and 5 per cent during the next few months.

Transport and communication costs in July rose the most of any category, at 9.7 per cent, the data showed. Housing costs climbed 7.14 per cent, while food price-rises eased to 2.1 per cent from 2.3 per cent in June.

Alone among the Gulf Arab oil producers, Kuwait dropped its peg to the tumbling dollar in May to fight inflation and lower the cost of some imports, a third of which the desert state pays for in euros.

Central Bank Governor Shaikh Salem Abdul-Aziz Al Sabah said in a newspaper interview this week that the decision to drop the peg was helping to stem inflationary pressures, but that rising commodity prices such as for wheat were having an impact.

"Kuwait has been traditionally slower then other GCC states with expenditures but, from last year, the government has been a lot more expansionary, which is picking up economic activity and leading to a surge in rental costs," Malik said.

"More expatriates are coming in; transport costs have also gone up" she said.

Revaluation pressure : Inflation across the Gulf Arab region, which are reaping a windfall from record oil prices, surged to at least a five-year high last year, paced by Qatar's 11.9 per cent, according to central bank and HSBC Holdings Plc data. That has increased pressure, especially on Kuwait and the United Arab Emirates, where inflation last year grew to at least an 18-year high, to revalue their currencies.

Kuwait has allowed its currency to appreciate 3.17 per cent since May 19, the day before it dropped its peg to the weakening dollar and adopted a basket of currencies. In July, money supply, an indicator of future inflation, grew at its fastest pace in 13 years.