GCC inflation has accelerated during the first half of the year, with the highest increases registered in Qatar and Saudi Arabia. The lowest inflation was reported in the UAE.

Consumer price index (CPI) inflation in Saudi Arabia rose 3.7 per cent year-on-year in July, pushed up by local supply constraints despite falling global food indices. Housing inflation on the other hand slowed in the kingdom and stood at 3.9 per cent in July.

Food prices have been going up in the kingdom for months, suggesting the growing population’s increased needs are adding pressure to food security. Domestic food production – the highest in the GCC – is not enough to meet consumption, which is expected to grow at a rate of 4.2 per cent between 2011-15.

Housing costs, which account for more than a quarter of the CPI, are either moderate or increasing across the region, with the sharpest rise registered in Bahrain. Costs rose 10.5 per cent year-on-year in July as the country awaits the delivery of new projects.

In Qatar, inflation has accelerated rapidly, with housing rental inflation reaching 6.7 per cent in the year to June 2013. Food inflation on the other hand remained relatively flat at an average of 2.5 per cent so far this year. Further increases in accommodation rents are expected as a number of major schemes ramp up over the next year or so, resulting in slightly higher forecasted inflation at 3.6 per cent in 2013 and 3.8 per cent in 2014.

Despite soaring property prices in Dubai, the UAE registered the lowest rate of inflation in the GCC – 1.3 per cent year-on-year in July. According to Qatar National Bank (QNB), overcapacity on the supply side is holding back prices, although the new upward direction in housing costs and diminishing overcapacity should push overall inflation steadily higher to an average of 1.3 per cent in 2013 and 2 per cent in 2014.

Inflation in Kuwait was about 3.3 per cent over the first six months of the year, while Oman’s inflation crept up reaching to 3.6 per cent year-on-year.

According to QNB, GCC inflation is likely to stabilise at a moderate level of about 3 per cent in the near term.

“Strengthening non-oil growth and expanding populations will give prices, particularly rents, some upward impetus,” the bank said in a report published in August. “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.”