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Wed 27 Jun 2012 06:37 PM

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Kuwait's inflation eases to 25-month low

Annual rate in Gulf state falls to 2.8% in May; decline driven by cheaper food prices

Kuwait's inflation eases to 25-month low
Cheaper food prices has driven down Kuwaits inflation rate.

Kuwait's annual inflation rate eased to a 25-month low of 2.8 percent in May and prices edged down slightly from the previous month, mainly because of cheaper food, state news agency KUNA reported on Wednesday.

Inflation in the major oil exporter has been slowing gradually. It hit 3.3 percent in April, down from a peak of 5.4 percent in May 2011.

Consumer prices fell 0.1 percent month-on-month in May, compared to a 0.6 percent drop in April, KUNA said, citing data from the Central Statistics Office.

"The low inflation reading is testament to a weak demand climate and anaemic credit growth," said Liz Martins, senior regional economist at HSBC in Dubai.

"Even with the salary hikes we have seen in recent months, we don't expect a major pick-up in the short- to medium term."

Around 3,000 Kuwaiti customs workers went on a week-long strike for higher pay in March, disrupting port traffic, while employees at national carrier Kuwait Airways grounded planes for three days during a walkout.

The civil service commission eventually agreed to wage rises of 25 to 30 percent for public sector employees, and proposed increases of up to KD330 ($1,190) per month for Kuwaiti private sector workers.

Paul Gamble, head of research at Jadwa Investment in Riyadh, said there was very little inflationary pressure coming from abroad, while consumer and government spending were not increasing that much.

"In general, the political uncertainty has hindered project implementation, which has kept a lid on one aspect of inflation," he said.

Project spending in Kuwait has been slowed by political instability, which has seen eight governments come and go in just six years. On Tuesday, thousands of Kuwaitis protested against a court ruling that effectively dissolved a parliament dominated by opposition Islamists.

"June will be potentially sluggish but then we have Ramadan coming up, so we will obviously see the usual Ramadan impact on food prices," Gamble said.

Food prices normally rise during the Muslim holy month of Ramadan, which begins in late July, as families enjoy elaborate evening meals after a daylight fast.

In May, food costs, which account for almost a fifth of Kuwait consumer expenses, fell 1.3 percent month-on-month, after a 2.6 percent plunge in April. Transport prices edged up 0.1 percent from the previous month, KUNA said.

Analysts polled by Reuters in March predicted average inflation in Kuwait of 4.5 percent in 2012, down from a three-year high of 4.8 percent last year.