Food inflation up
Average annual inflation rate seen at 3.5%
Inflation in the consumer price index (CPI) inched down from 3.4% year-on-year (y/y) in April to 3.3% y/y in May, amid a slowdown or stabilization across all components, with the exception of healthcare and local food inflation. Local food inflation climbed at a gradual pace for the third consecutive month, but remains relatively low.
With international food prices still declining, we expect local food inflationto remain soft in the second half of this year and correct lower. The strongerdinar is also projected to limit any significant inflationary gains.Subse-quently, we still forecast an average annual inflation rate close to 3.5% in 2015.
Core inflation (CPI excluding food items) eased for the second consecutive month in May, from 3.7% y/y in April to 3.5% y/y.Subdued inflation across most components has offered core inflation some reprieve recently. We expect housing inflation to also ease modestly in the near-to-medium term; this will help keep core inflation in check. Excluding housing (and food), inflation is off and now under 2% y/y.
Inflation in the local food price index edged up from2.3% y/y in April to 2.6% y/y in May, whileglobal food prices declinedby 17.5% y/y.The uptick in local food inflation may be attributed to increased demand in the run-up to the Holy Month of Ramadan in June.With international food prices still declining, we expect local food inflation to remain relatively soft in the second half of 2015. (Chart 2).
Inflation in housing serviceswas unchanged from April at 6.3% y/y.(Chart 3).Inflation in this component is updated once every quarter and the next update is due in the June report. Housing inflation rose to an almost six-year high in March on healthy demand levels. We expect it to subside later in 2015.
Clothing & footwearcostsfell slightly further in May; inflation in furnishings & household maintenance remained comfortable.Clothing & footwear inflation declined by almost 1% y/y in May. Inflation in this segment has been trending lower for a year mainly due to a high base and stronger dinar (most products in this segment are imported). Inflation in furnishings & household maintenance came in narrowlylower in May at 3.6% y/y.
Inflation in the 'other goods and services'segmentslowed down from 2.7% y/y in Aprilto 2.4% y/y in May.Inflation in this segment, which includes prices of personal care products andjewelry and certain business charges,rebounded from a low base early in 2014 and appears to have hit a peak in April of this year.
Arab Times 2015
