Qatar's inflation remained stable at 3 percent in 2014

Jan 18, 2015 12:00 AM

 

Inflation in Qatar continued to remain moderate in 2014 thanks in part to lower international food prices.

According to the Ministry of Development Planning and Statistics (MDPS) consumer price index (CPI) inflation remained roughly stable at 3.0 percent in 2014 from 3.1 percent in 2013. Key drivers of inflation in 2014 were higher rent inflation offsetting lower international food prices.

Going forward the Qatar National Bank expects domestic inflation to accelerate pushing inflation higher to 3.5 percent in 2015 and 4.4 percent in 2016.

The combination of rapid population growth (estimated to have risen by 10.1 percent in 2014) and higher GDP per capita led to a strong increase in land prices.

According to the latest Ministry of Justice data land prices increased 92.7 percent year-on-year in December 2014. As a result real estate developers raised rents in order to recoup higher land prices.

Accordingly rent inflation rose to an average 7.0 percent in 2014 leading to overall domestic inflation of 3.3 percent. This is likely to continue over the coming years in line with the favourable outlook for the Qatar economy.

Accordingly we project domestic inflation to rise to 5.0 percent in 2015 and 5.3 percent in 2016.Counterbalancing this foreign inflation fell slightly to 2.0 percent in 2014 as international food prices fell on record global food harvests large US stockpiles and weak demand.

Given that Qatar has limited domestic food production these lower international food prices are likely to continue pushing Qatar's food inflation lower albeit with a lag. The other components of foreign inflation (clothing and footwear; and furniture textiles and home appliances) however came in stronger than expected in 2014. As such foreign inflation did not come down as much as we expected in 2014.

Looking ahead the International Monetary Fund (IMF) is forecasting international food prices to fall by 10.8 percent in 2015. As a result we forecast foreign inflation to turn negative (-0.5 percent) in 2015 before rebounding somewhat (1.8 percent) in 2016.

In summary Qatar's inflation continued to remain moderate in 2014. Looking ahead QNB forecasts overall inflation to rise from 3.0 percent in 2014 to 3.5 percent in 2015 and 4.4 percent in 2016 on rising rent inflation. However there is a risk that large investment spending and the growing population could lead to supply bottlenecks owing to limited domestic capacity.

This could potentially push up domestic prices more than expected and lead to overall inflation rising above our baseline forecasts.

 

 

 

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