The Economist Intelligence Unit of the magazine “Economist”, under the title “High inflation in Kuwait in 2022”, referred to the latest data published by the Central Administration of Statistics on the consumer price index, which shows that the Prices rose by an average of 4.4% in the first four months of 2022, Al-Rai daily reports. The EIU said the figure is in line with its expectation that inflationary pressures in Kuwait will increase in 2022, with annual average inflation reaching 5.5%.
The magazine explained that this is due to supply chain bottlenecks exacerbated by decisions made by China to deal with the Corona pandemic, and the global rise in material prices due to the invasion. Russian Federation of Ukraine, while at the same time it should curb the growth of consumer prices, through the tightening of monetary policy.
The unit added that Kuwait, like its counterparts in the region, has seen growing consumer price growth since 2021, and this has been exacerbated by the global rise in material prices following the war in Ukraine. Rising oil prices contributed to the transportation segment, which is the fifth largest component of the consumer price index basket, registering an annual price increase of 4.8%. The unit said that although food price inflation, which is the second largest component of the consumer price index basket, fell to 9.1% from its all-time high of 11, 5% in 2021, it was the second largest contributor to inflation.
The unit estimates that Kuwait remains vulnerable to fluctuations in international food prices, as it imports about 95% of its needs, indicating that the recent sharp increase in these prices prompted the government to create a committee on food security. At the same time, the 2.3% increase on an annual basis in house prices, which is the largest component of the consumer price index, contributes to increasing inflation rates, due to rent price increases in 2021 caused by the local real price imbalance. real estate market, while limited supply and speculation have led to higher house prices.
The unit expects growth in housing demand to continue to outpace supply despite the resumption of construction work, as the recovery in oil prices allows for an increase in capital investment. The unit indicates the possibility that the departure of expatriate workers will reduce the demand for real estate and prices. The unit said the Central Bank of Kuwait raised interest rates in mid-March by 25 percentage points to 1.75%, in line with the US Federal Reserve, which will affect the housing segment in the future. decrease.
The sources said that at the same time, higher interest rates will boost dollar strength and reduce import costs as the dinar is pegged to a dollar-dominated basket of currencies. The Economist Intelligence forecasts that consumer prices in Kuwait will remain high in 2022-2023 and that the planned implementation of value added tax in the second half of the forecast period, in addition to further reforms of the government system price support, lead to increased inflationary pressures in 2024-2025. He noted that the increase in interest rates from 2022 will help offset the rise in prices, suggesting that the inflation rate will continue to be contained between 2023 and 2026 at an average of 2.2%.
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