1. Weekly Commentary
QNB Economics
economics@qnb.com.qa
11 August 2013
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GCC inflation has accelerated but should stabilize, according
to QNB Group
Consumer Price Index (CPI) inflation in the GCC
has accelerated since mid-2012, although, at
2.9% in May 2013, it remains well below the
double-digit levels reached in 2008. According
to QNB Group, GCC inflation is likely to stabilize
at a moderate level around the 3% mark in the
near term as higher increases in housing costs
are offset by lower food price rises. This
compares with global inflation average 3.8%
and MENA inflation of 9.3% in 2013-14.
Historically, GCC inflation has been low until
rising oil prices and an economic boom pushed
inflation higher in the 2000s.
GCC CPI Inflation (Jan-12 to May-13)
(% change year-on-year, overall is weighted by GDP)
Source: Bloomberg, DataInsight, IMF and QNB Group
analysis
Housing costs (mainly rents) account for 27% of
the CPI basket in the GCC and food prices for
20%. These items also tend to be relatively
volatile and, therefore, account for most of the
change in the direction of inflation.
Overall, rent inflation has averaged 2.9% so far
in 2013. It has picked up to high levels in some
countries (Qatar and Bahrain) and remains low
but has turned a corner in others (UAE). Food
price inflation has remained low in most
countries, with the exception of Saudi Arabia, in
line with global food price indices as the GCC
imports most of its food needs.
Saudi Arabia accounts for almost half of the
GCC economy and rising inflation in the
Kingdom has been the main driver of price
increases in the GCC. Food price inflation
averaged 5.8% in the first 6 months of 2013 as
local supply constraints pushed up prices
despite falling global food indices. Relative to
the rest of the GCC, Saudi Arabia meets more of
its food needs through domestic production.
Housing inflation has slowed in Saudi Arabia as
a major house building program has been rolled
out, alleviating tight supply. These market
forces are likely to remain in place resulting in
inflation remaining close to the current level of
3.9%.
The UAE currently has the GCC’s lowest rate of
inflation (0.8% year-on-year so far in 2013),
despite strong growth in private demand,
suggesting that persistent overcapacity on the
supply side is holding back prices. Rental
inflation has averaged 1.3% so far this year as
rents have stabilized in Abu Dhabi and begun to
rise in Dubai and the other emirates. The new
upward direction in housing costs and
Saudi Arabia
Bahrain
Kuwait
Oman
Qatar
UAE
3.9%
3.1%
2.5%
2.1%
3.5%
0.8%
AverageInflation in 2013
2.9
2.8
2.4
2.0
2.1
Sep-12 May-13May-12 Jan-13Jan-12
Overall Inflation

2. QNB Economics
economics@qnb.com.qa
diminishing overcapacity should push overall
inflation steadily higher to an average of 1.3%
in 2013 and 2.0% in 2014, according to QNB
Group.
Inflation in Qatar has accelerated this year as an
influx of expatriates (to work on the roll out of
major infrastructure projects) has driven up
prices. Rental inflation reached 6.7% in the year
to June 2013 having been negative almost every
month from early 2009 to mid 2012. Meanwhile,
food inflation has remained relatively flat at an
average of 2.5% so far this year. QNB Group
expects some further increases in rents as a
number of major projects ramp up over the next
year or so, resulting in slightly higher inflation
at 3.6% in 2013 and 3.8% in 2014.
Rents in Bahrain have also increased rapidly,
averaging 9.3% so far this year as they have
bounced back from sharp falls in 2011 and 2012
when political instability shook the economy.
Inflation in Kuwait has been moderate so far in
2013 with rents rising by 3.2% on average and
food prices by 3.3%. In Oman rent and food
inflation have been relatively stable at 1.2% and
2.2% respectively.
Overall, inflation in the GCC is likely to stabilize
at around 3%, according to QNB Group.
Strengthening non-oil growth and expanding
populations will give prices, particularly rents,
some upward impetus. However, this is likely to
be counterbalanced by falling global food prices,
which will make food imports cheaper and hold
back inflation. Additionally, oil prices are
expected to be slightly lower in 2014, which
tends to ease inflationary pressures in the GCC
as it results in less oil revenue flowing into the
economy, weakening demand.