KUWAIT: Inflation in consumer prices edged upwards for the first time in three months in January. Headline inflation rose from 3.0 percent year-on-year (y/y) in December to 3.3 percent; core inflation (which excludes food inflation) also came in marginally higher at 2.8 percent. The pickup in the headline inflation rate was mostly driven by gains in the food, furnishings and healthcare components. With inflation across most components expected to remain soft in the near- to medium-term, we forecast a slightly lower annual average reading of 3.0 percent in 2016, versus 3.3 percent in 2015.

Inflation in local food prices rose slightly in January. Food inflation climbed from 4.6 percent y/y in December to 5.1 percent in January, even as global food prices have been registering declines for over a year. According to the Commodity Research Bureau's global commodity index, international food prices fell by 6.8 percent y/y in January. With global food prices expected to remain in decline in the medium-term, upward inflationary pressures on local food prices are likely to ease in the coming months.

Inflation in furnishings & household maintenance and clothing & footwear gathered some momentum in January. Inflation in furnishings rose from 2.4 percent y/y in December to 2.6 percent in January. Clothing & footwear prices continued to decline for the tenth consecutive month, but at a much slower pace of 0.2 percent y/y. The stronger dinar continues to keep costs low in this segment in addition to the recent end-of-season sales.

Inflation in the 'other goods & services' segment witnessed a slight rebound in January as did inflation in the health sector. Inflation in this component, which is mostly comprised of imported items including personal care products and jewelry, has also been dragged lower by the stronger dinar. Meanwhile, inflation in the healthcare sector was up; after stabilizing at 1.3 percent y/y for three consecutive months, inflation in healthcare costs ticked up to 1.5 percent in January.

Inflation in wholesale prices eased in the final quarter of 2015, on the back of softer gains in manufacturing, and agriculture, livestock & fishing prices. Wholesale price inflation eased to 2.2 percent y/y in 4Q15. Inflation in wholesale food costs also subsided in the 4Q15, mainly as a stronger dinar weighed down on imported food costs.