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Inflation situation in Kuwait has not improved yet: KES official

Mohammad Bader Al-Jouan

By Majd Othman

KUWAIT: The Economist Intelligence Unit reported that inflation rates in the GCC countries will be among the lowest in the Middle East and North Africa region in 2022-2023. The report pointed out that the average inflation will remain under control at the level of 3.7 percent this year, with a decrease to 2.4 percent next year.

Despite the positive impact of pegging the currencies of the GCC states to the dollar in countering the threat of imported inflation, this effect remains limited because the Gulf countries will be exposed to the impact of the global rise in commodity prices represented by a rapid rise in grain prices and the disruption of the agricultural supply chain resulting from the Russian-Ukrainian war. Kuwait Times spoke with Mohammad Bader Al-Jouan, a member of the Board of Directors of the Kuwait Economic Society (KES) and discussed the impact of inflation on Kuwait.

Al-Jouan, while explaining the impact of the economic crises on human life,  said, “The economy is an interconnected chain that affects human life at all levels whether economically or socially. Therefore, anything that affects this chain will therefore affect everything in turn.” “The rise in oil prices affected supply chains negatively because it caused a rise in imports, shipping lines and the value of imported materials from abroad. As a result, prices of foodstuffs also soared,” he pointed out.

“With the passage of the price fixing law and the weakness of government oversight from the Ministry of Commerce, it had a very negative role in curbing this huge rise in increasing prices,” he pointed out. Al-Jouan said that all central banks tried to raise interest rates to curb inflation, and so far no central bank has succeeded in checking the spiraling inflation. “The inflation situation in Kuwait may be relatively better than Europe and America, but we are in Kuwait still suffering from a sharp rise in the prices of food, construction, education and school prices that directly affect the life of the citizen,” he said.

As for the social impact of inflation, Al-Jouan mentioned that the concept of a decent life in Kuwait no longer exists, saying “A citizen who receives a monthly income of KD 1,500 used to spend KD 1,000 to secure his needs of food, drink, rent and other expenses. But today, he may need to spend more than KD 1,500 per month to cover family requirements,” he said, adding that “inflation is affecting the quality of life of citizens and residents in Kuwait.”

“The economic problems not only affect the economic situation. In fact, it has social and legal aspects in many cases, such as what happened with small businesses during the pandemic. Their economic problems began when the government neglected the owners of these businesses when they faced social and legal problems leading many of them to imprisonment or family destruction, or losing their jobs.  The government should intervene effectively to solve the inflation problem as soon as possible,” he said.

Regarding the impact of the inflation on Kuwait, Al-Jouan said “What we suffer most in the Gulf countries is the lack of numbers of statistics and the weakness of the process of monitoring and analyzing the economic situation. However, general indicators show that the inflation situation is normal or slightly above normal. “But, this is contrary to reality because, in reality we see a significant increase in the prices of building materials, food and education. Even the rise includes the Internet tariffs as well,” he said.

“In emergency situations, governments take quick intervention when there is an economic stagnation, as happened during the pandemic, by increasing subsidies and issuing economic packages. The US government announced a huge pandemic stimulus plan amounted to $1.9 trillion. These economic packages were in the interest of the economy to ease the impact of inflation, unemployment rate and others. But in Kuwait, nothing of the similar measures or incentives were announced,” he said.

“The state should have intervened in these emergency situations, but that has not happened in more than 60 years,” he mentioned. “To confront inflation locally, the first solution must be to increase government subsidies on products. The Kuwait Supply Company must also do its work for it and the role it plays is not very good as the Kuwait Supply Company is established under the Ministry of Trade and is concerned with food security for the country,” he pointed out.

The annual inflation rate in Kuwait eased to 4.52 percent in May of 2022 from 4.71 percent in the previous month, according to Kuwait Central Statistical Bureau. Prices eased for food & beverages (8.23 percent vs 9.13 percent); furnishing and household maintenance (2.27 percent vs 2.35 percent); clothing and footwear (6.37 percent vs 6.38 percent).

In contrast, inflation remained steady for housing (at 2.26 percent) while rose faster for transport (4.90 percent vs 4.82 percent). On a monthly basis, consumer price inflation remained unchanged at 0.16 percent, the Bureau said.  In Kuwait, the main components of the Consumer Price Index (CPI) are: housing (33.2 percent); food and beverages (16.7 percent); furnishing and household equipment (11.4 percent); clothing and footwear (8 percent) and transport (7.5 percent). The index also includes miscellaneous goods and services (5.8 percent); education (4.2 percent); communication (4 percent); recreation and culture (3.9 percent); restaurants and hotels (3.4 percent); health (1.5 percent) and tobacco (0.3 percent).

Kuwait’s energy sector has performed well so far this year, with oil output up around 14 percent in the first four months thanks to reduced OPEC+ curbs. In the non-oil sector, growth momentum was likely restricted in early 2022 by a surge in COVID-19 cases and some ensuing curbs.  However, since mid-February cases have fallen and these restrictions have been eased, supporting domestic consumption and visitor arrivals. According to reports, both business and consumer lending improved during the first quarter, with the latter growing at a double-digit annual rate. A multi-year high in the price of oil is expected to boost government spending, the reports suggested.

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