TRIBUNE NEWS NETWORK

DOHA QATAR’s inflation in March, as measured by the change in the consumer price index (CPI), levelled at 1.2 percent year-on-year for the third consecutive month.

By the end of 2011 inflation had averaged 1.9 percent, rising on the back of a rapidly growing economy, expansionary fiscal policies, burgeoning global fuel, food and commodity prices and a stabilising rental market.

Among the four largest components of the CPI, entertainment, recreation and culture posted the highest year-on-year change of 5.5 percent, followed by food, beverages and tobacco, which increased by 3.4 percent.

Transport and communications gained 2 percent year-on-year, while rent, fuel and energy, the largest category, continued its deflationary pattern, declining by 5.7 percent.

Pronounced inflation in the transport and communications category, which averaged 6.4 percent during 2011, came in the wake of a 25 percent increase in the price of fuel by the Qatari government in January 2011.

This was a significant contributor to overall inflation in 2011. Inflationary impulses stemming from this component are, however, not expected to feature to the same extent in 2012.

Meanwhile, depressed rental prices which contributed to a decline of 4.9 percent in the rent, fuel and energy component of the CPI in 2011 continue to exert a deflationary effect.

Even though prices have been stabilising over the last year, there is little expectation that they will increase in the near term while supply continues to outstrip demand.

Excluding the rental component from headline CPI and March’s inflation rate would be showing an increase of 3.8 percent rather than 1.2 percent on a year-on-year basis.

Data from Qatar’s producer price index (PPI), which tracks prices of industrial sector output across three categories— mining, manufacturing and electricity and water—and which is heavily correlated with hydrocarbon prices, point to high but perhaps moderating inflation. Despite depressed housing rents, headline inflation in 2012 is expected to continue to rise gradually over the course of the year, by an average of 2 percent.

Inflationary impulses are likely to stem from the government’s capital spending plans ahead of the 2022 World Cup, burgeoning credit growth, accommodative monetary policies and recent public sector pay and pensions increases in 2011.

The inflationary outlook in Qatar in 2012, however, will still be at the low end of forecasts for its neighbours in the GCC.