Weekly comentary economic report

1. Page 1 of 2
Economic Commentary
QNB Economics
economics@qnb.com
30 August, 2015
Qatar’s inflation expected to bottom out in 2015
Qatar’s consumer price index (CPI) inflation
remained moderate in the first seven months
of 2015. According to the Ministry of
Development Planning and Statistics (MDPS),
consumer price index (CPI) inflation is
estimated to have averaged 1.5% in the year to
July compared with 3.1% in 2014. Inflation has
been lower this year mainly due to lower
domestic inflation as a result of falling rents as
well as lower foreign inflation owing to
declining international food prices. Going
forward, we forecast overall inflation to
bottom out this year, before picking up in
2016-17.
Qatar CPI Inflation
(% change; weights shown in brackets)
Sources: MDPS and QNB Economics analysis
Foreign inflation has been lower this year as
global food prices have been on a gradual
declining path since their peak in the summer
of 2012 (see our commentary, Qatar’s food
price inflation to remain low on falling
international prices). Prices in the other
components of foreign inflation (clothing and
footwear, furnishings and household
equipment) also remained weak in the first
seven months of 2015. Weak international
commodity prices are likely to keep foreign
inflation in check for the remainder of 2015.
Domestic inflationary pressures have been
weak despite strong population growth. This is
mainly because housing inflation (21.9%
weight in CPI) slowed. Inflation in this
component, which mainly consists of rents,
slowed from an estimated 4.6% year-on-year
in January to 2.3% in July, despite strong
population growth. Strong supply of additional
housing units might be driving down rental
costs. More supply of low to middle income
housing is probably coming onto the market,
which is meeting the bulk of the demand from
expatriates. Furthermore, transportation
inflation (14.6% weight in the CPI basket) has
slowed to 3.2% year-on-year in July from an
estimated 7.6% year-on-year in January 2015.
In June and July, inflation picked up slightly
owing primarily to the rebound in food prices
due to seasonal Ramadan effects. Food prices
in Qatar tend to increase every year during
Ramadan and food inflation is therefore likely
to moderate during the remainder of 2015. In
addition, a lower decline in recreation and
culture prices (12.7% weight in the CPI basket)
also led to a rise in inflation during June and
July. Having declined 6.5% in the 12 months to
May, the recreation and culture component
(which includes expenditures incurred abroad
in respect of transport, travel and tourism)
only declined 2.8% in the 12 months to July.
The strong US dollar is another factor likely to
keep inflation down for the remainder of the
year. The trade weighted index for the US
dollar, to which the Qatari riyal is pegged, has
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15
Domestic (74%)
Foreign (26%)
Total (100%)
e e

2. Page 2 of 2
Economic Commentary
QNB Economics
economics@qnb.com
30 August, 2015
appreciated 19.5% in the 12 months to end-
July. The US dollar is projected to appreciate
further with the expected tightening of US
monetary policy. This would render imports of
goods and services in other currencies cheaper,
keeping down prices for final and intermediate
products and lowering inflation in Qatar.
In summary, Qatar’s inflation continued to
remain subdued in the first seven months of
2015. The decline has been mainly due to
lower domestic inflation as a result of falling
rents as well as lower foreign inflation owing
to declining international food prices. Looking
ahead, we forecast overall inflation to increase
slightly in 2016-17 as population growth is
expected to increase aggregate demand,
driving domestic inflation higher.
Furthermore, a recovery is expected in
international food and oil prices in 2016-17,
which should lead to higher foreign inflation.
QNB Economics Team:
Ziad Daoud
Acting Head of Economics
+974-4453-4642
Rory Fyfe*
Senior Economist
+974-4453-4643
Ehsan Khoman*
Economist
+974-4453-4423
Hamda Al-Thani
Economist
+974-4453-4642
Rim Mesraoua
Economist – Trainee
+974-4453-4642
* Corresponding author
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