Qatar price data could suggest deflation - HSBC

INFLATION CHECK: Qatar has suffered from the highest inflation rates in the Gulf Arab region in recent years. (Getty Images)

A sharp decline in Qatari consumer prices in the first three months of 2009 point to a slowdown in domestic demand and could indicate the OPEC oil and gas producer has already experienced annual deflation, HSBC said.

The Qatar Statistics Authority said earlier in May a new consumer price index showed prices fell more than nine percent in the first quarter compared with the fourth quarter, as housing costs slumped 16 percent and food prices eased.

The authority did not release comparative data for the first quarter of 2008.

"After 14 consecutive quarters of running at double-digit levels, newly released data suggest that Qatari inflation did not just subside in Q1 09 but actually became deflation," HSBC economist Simon Williams said in a research note.

"Although we treat the data with caution, the severity and breadth of the price decline reported in the first quarter of the year suggests an abrupt reversal in domestic demand trends," he said in the note this week.

HSBC said rebasing the data suggested annual consumer prices fell 2.4 percent in the first quarter from inflation of 13.2 percent in the fourth quarter.

Qatar, the world's biggest exporter of liquefied natural gas, has suffered from the highest inflation rates in the Gulf Arab region in recent years, hitting peaks of almost 17 percent in the middle of last year.

Inflationary pressures have dropped off quickly across the Gulf as oil prices slumped from peaks of $147 a barrel last July and the dollar strengthened, easing import costs for states that peg their currencies to the greenback.

"Our expectation is that the downward trend in prices will have run its course by mid-year," HSBC said.

"Nevertheless, the severity of the Q1 price fall has taken us by surprise, and we will continue to watch closely for evidence of further price declines that could undermine corporate margins, discouraging investment and slowing employment growth."

In addition to declines in housing prices and food, prices of clothing, communications, entertainment and education fell by a percentage point or more each over the first quarter, HSBC said.

Qatar is set to grow at the fastest pace in the region this year -- 10 percent according to HSBC estimates - as it boosts production of gas. (Reuters)

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