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Sun 27 Apr 2008 10:26 AM

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Inflation woes continue to plague Kuwait

Central bank calls on gov't to take measures to slow down soaring rent and food costs.

Inflation woes continue to plague Kuwait
INFLATION WOES: Kuwaits central bank has implored the government to tackle skyrocketing inflation. (Getty Images)

The Kuwaiti government should take measures to slow down rising rents and resist calls to boost spending to tackle record inflation, the Gulf Arab state's central bank governor said in remarks published on Sunday.

Inflation in Kuwait, the only state in the world's largest oil-exporting region that does not peg its currency to the dollar, hit a record 9.5% in January as housing costs jumped 16.1% and food prices rose 7.7%.

RELATED: Kuwaiti inflation hits record high

"In this period, the importance of state's efforts to oversee the housing market and bring back a balance to the real estate market is clear," Sheikh Salem Abdul-Aziz Al-Sabah said, according to Al-Anba daily.

In other Gulf states, including the UAE and Qatar, governments have introduced rent caps to try to combat real estate price inflation.

Sheikh Salem, who did not propose any specific measures, also warned the government heeding to "political pressures" to increase state spending. "We can see the first negative signs of such an increase," he said, without elaborating.

In February, the government raised salaries for employees in the public sector, which employs more than 90% of Kuwaitis. It faced pressures to raise wages for a second time before the country's ruler dissolved the government in March.

RELATED: Kuwait doles out allowances, risks stoking inflation

Demands to raise salaries in the public service are a key issue in the election campaigns of many members of parliament for the May 17 polls.

The world's seventh-largest oil exporter posted a budget surplus of 11.44 billion dinars ($43.02 billion) last fiscal year. The cabinet projected spending of 18.5 billion dinars for the 2008/09 fiscal year, state news agency Kuna said earlier this month. Last year, expenditures were 10.3 billion dinars. RELATED: Kuwait posts $43bn fiscal surplus

Along with rising rents, Sheikh Salem said higher import costs for food items - such as rice, wheat, corn and yogurt - were driving inflation in Kuwait, which severed its link to the dollar last may partly to slow down price imported price rises.

"Despite a recent rise in prices, this is still relatively moderate compared to inflation in other countries of the Gulf Cooperation Council," Sheikh Salem said.

He also called on the government to combat unjustified price increases in stores.

The Ministry of Commerce and Industry was studying price rises and has asked importers to show proof of cost of their imports, daily Al-Qabas reported on Sunday.

Sheikh Salem also said the central bank was using monetary tools to soak up liquidity, selling bonds worth 4.562 billion dinars to March from 2005. The central bank was using "mainly non-direct monetary policy tools to readjust the level of local liquidity," he said.

New consumer lending rules that limit borrowers to monthly interest and repayment instalments of no more than 40% of their salaries, compared with 50% earlier, would also begin soaking up liquidity after six months, he added. (Reuters)

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