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Kuwait better positioned to fight inflation

By Sajeev K Peter

KUWAIT: Kuwait and its Gulf neighbors are better positioned to tackle the global phenomenon of the ‘cost-of-living crisis’ compared to the rest of the world, thanks to bullish oil prices, financial experts told Kuwait Times, predicting the oil market is expected to remain buoyant with crude prices hovering around $100 throughout 2022 and beyond, in the near term.

“GCC countries are better equipped today to rein in inflation that has ignited a ‘cost of living crisis’ across the world in the aftermath of the Russian war on Ukraine and a post-COVID economic uncertainty,” said Shaheed Ahmad, an oil market expert. High oil revenues are helping Kuwait and GCC countries tame the global phenomenon despite an uncertain geopolitical situation following the Ukraine war, he explained.

Although inflation in Kuwait rose to 4.4 percent annually in the second quarter of 2022, it is expected to trend lower in the second half. “In Kuwait, we are also experiencing the impact of inflation. But we are better off compared to people in other parts of the world, as authorities have to a certain extent succeeded in maintaining the prices of essential commodities – groceries, fruits, vegetables and cooking oil, thanks to high oil prices. Prices are more stable today,” Ahmad said.

Tight market supply, declining spare capacity and low oil inventories could keep the oil demand high over the medium term, although global recession fears could affect crude markets in the short term, experts pointed out. Ironically, rising petrol, food and energy prices have pushed many households around the world into an unprecedented cost-of-living crisis. The cascading effect of the crisis has been felt in the Gulf region as well, albeit moderately, the experts said.


According to experts, a few official measures intended to control runaway inflation have helped ease prices in the country. It may be recalled that the Central Bank of Kuwait, in tandem with other central banks around the world, raised its discount rate by 25 basis points to 2.75 percent on Aug 12, 2022 in response to global inflationary pressures. The authorities have also intervened in the wholesale and retail markets to ensure that merchants are not exploiting the situation to their advantage. Gains made by the Kuwaiti dinar in line with a stronger US dollar are also helping the authorities check price pressures through lowering import prices, they point out.

“The cost-of-living crisis is essentially caused by higher inflation and a low wage growth, pushing many households into abject poverty across the world. Even though the prices of most of the commodities remain elevated in Kuwait, they were largely unchanged from the first quarter of the year. Interestingly, we notice a marginal drop in prices of many items in Kuwait in July and August,” said David Augustine, an economist with an investment firm in Kuwait.

While many of the market observers Kuwait Times spoke to admitted to the fact that the inflation crisis has been compounded by supply chain disruptions in many countries and production stalemates, piling pressure on living standards of people, Gulf countries are managing the crisis effectively as a result of surging oil prices.

Oil prices declined on Wednesday on growing worries that a recession will hit fuel demand even as supply issues linked to the Ukraine crisis and the unrest in Libya and Iraq affected the market. Brent edged lower to $95.93 a barrel on Wednesday while West Texas Intermediate, the gauge that tracks US crude, was down at $89.02 a barrel. The recent oil price surge was triggered by rumors of an impending OPEC+ production cut, even though the meeting is a week away.

Kuwait’s Deputy Prime Minister and Minister of Oil Mohammad Al-Fares recently reiterated that “structural supply weaknesses caused by years of underinvestment have led to extremely limited worldwide spare capacity”. While the minister points to the “extraordinary volatility that exists in the oil markets”, he argues that markets need stability like never before so that participants could plan future production capacity increases to meet rising demand. Market watchers expect oil prices will remain at a comfortable level of around $100 per barrel after OPEC leader Saudi Arabia hinted that OPEC+ has the means to deal with market challenges, including by cutting production.

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