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Thu 21 Jul 2011 05:24 PM

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Bahrain price drop worsens to 2.1% in June

Sharp decline in transport costs, slight decrease in food prices drag consumer prices lower

Bahrain price drop worsens to 2.1% in June
(Image for illustrative purposes only)

Consumer prices in Bahrain fell by 2.1 percent year-on-year in June, the fourth consecutive month of falls, due to a sharp drop in transport costs and a slight decrease in food prices, data showed on Thursday.

Consumer prices in the small non-OPEC oil exporter have been falling since March as the worst public unrest since the 1990s hits tourism and domestic demand.

On an annual basis, prices in Bahrain declined by 2.1 percent after a 1.7 percent fall in the previous month, data from the Central Informatics Organisation showed.

The Gulf Arab country last saw a slump in prices on a similar scale in 1986, when average inflation came in at -2.5 percent for the full year, according to the International Monetary Fund.

Bahrain's largest Shi'ite opposition group Wefaq said on Sunday it planned to pull out of a national dialogue, which was aimed at reforms after mass pro-democracy protests rocked the Sunni-ruled kingdom earlier this year.

Analysts have said the slump in prices is linked to the unrest -- inspired by popular protests that toppled the leaders of Egypt and Tunisia - which has hit economic activity and brought tourism to a virtual standstill.

"It's a reflection of the Arab Spring. The economy came to a standstill," said Turker Hamzaoglu, MENA economist at Merrill Lynch. "We know from the financial accounts as well that there has been some outflow."

"It [inflation] is likely to be there, but probably with the second half of the year there is going to be some recovery because the situation has normalised," he said.

On the month, living costs in the island kingdom fell by 0.3 percent after they were unchanged in May.

Transport prices, which account for 12 percent of the CPI basket, plunged by 1.9 percent after a sharp rise of 4.1 percent in the previous month.

"Let's not look at just transport costs coming down but some of the measures the government is trying to do, giving some handouts to the population," Hamzaoglu said.

Social spending of at least $700 million, or around 3.6 percent of Bahrain's economic output, has been promised to help calm the protests.

Food prices, which make up 16 percent of the basket, declined slightly - by 0.1 percent month-on-month, after a 2.6 percent drop in the previous month.

Housing costs, the largest consumer expense at 24 percent of the basket, remained flat in June for the third month in a row.

Standard & Poor's said on Wednesday it had removed Bahrain's ratings from credit watch negative as political tensions have eased, and on expectations that increased public spending will lift economic growth next year.

Analysts polled by Reuters in June forecast average inflation of 3.0 percent this year - suggesting prices should begin to rise at some stage.