The National Bank of Kuwait issued a report expecting that the tightening of monetary policies globally and the weak global economic activity would contribute to moderate inflation rates, with an expected decline to about 2.7 percent on average in 2023. The Central Bank of Kuwait is also expected to continue raising the discount rate in the first half of 2023 as a result of the US Federal Reserve’s completion of its current cycle in raising the interest rate, while non-oil economic activity in Kuwait is likely to decline.
Al Qabas reported that the risks threatening high inflation rates stem from labor shortages and high import costs, in addition to the rise in commodity prices, among other factors. The report stated that the inflation rate in Kuwait reached 4 percent on average in 2022, indicating that external shocks resulting from the Ukraine war exacerbated supply chain bottlenecks in the first half of 2022, bringing the overall inflation rate in Kuwait in April at the level of 4.7 percent, while price pressures have receded since then, and the inflation rate fell to 3.2 percent by the end of the year, similar to the rates recorded in November and September.
The report indicated that slowdown in the inflation rate is mostly due to a combination of the return of supply chains to their normal levels, the fading of the effects of the increase in private education prices and the slowdown in the pace of increase in residential rents. It added that inflation rates may decline marginally in the future amid the tightening of global monetary policy and the possibility of a slowdown in the global economy.
NBK indicated an increase in the food and beverage inflation rate by the end of the year, reaching 7.5 percent in December, compared to 6.5 percent at the end of the third quarter of 2022. It was noted that the prices of some volatile sub-components such as fish and seafood increased in December, resulting from shortage of workers in the fishing sector, as well as high import prices, and partly the weakness of the dollar.
According to the report, inflation for housing services such as rents, reached 1.4 percent on an annual basis in December compared to 2.2 percent in September, but it increased by 0.8 percent on a monthly basis annually. Furthermore, prices for the maintenance and repair services category rose at the fastest pace since March 2021. Moreover, the housing services inflation rate increased by 2.2 percent for the full year on average, compared to 0.5 percent in 2021, which is the fastest since 2016.
The core inflation rate, which excludes food and housing prices, rose to 2.8 percent year-on-year in December, with clothing, footwear, transportation and other goods and services among the biggest contributors. A number of categories also witnessed sharp increases on a monthly basis, including restaurants and hotels, services and miscellaneous goods and health care, with the latter attributed to a shortage of medicines in government hospitals, and in general, the core inflation rate increased in 2022 to 3.9 percent due to the escalation of inflationary pressures in education, clothing and transportation.