By Andy Sambidge
New research says gov't increases in salaries will be key driver of inflation
Inflation in Kuwait is likely to rise to up to four percent in the first half of 2012, driven by massive government spending, Kuwait Finance House has said in a new research report.
KFH-Research's report showed that the direct governmental increases in salaries will play a role in increasing inflation pressure in Kuwait, due to an increase in liquidity and demand.
However it added that it expects inflation to ease to between three and 3.5 percent in the second half of the year as the government's extensive subsidy system will prevent higher inflation in the future.
Oil-related subsidies may reduce the cost of transportation and electricity and thereby price of goods and services in Kuwait, the report said.
Inflation rates increased in February to reach 3.8 percent as a result of the increase in prices of most consumption items, especially food.
KFH said the increase in Kuwait's overall inflation is similar to other Gulf countries, where increases were also driven largely by higher prices of food and beverages as the GCC imports most of its food.
"Due to rising global fuel and food prices, we expect Kuwait's inflation to remain high at a range of 3.5-4 percent in 1H12," the report said.
In March, the Kuwait government announced a large rise in public sector wages while encouraging reduction on food prices.
The official announcement suggested the government workers would receive a 25 percent hike and pensioners would receive 12.5 percent pension rise.
The date from which the implementation will start has not been announced.
"Private sector wages will likely rise in compensation as companies have to compete to attract labour, and an increase in the minimum wage is likely," the report added.