“Looking to 2016 and 2017, global deflationary pressures and a strong US dollar (to which the Qatari riyal is pegged) are expected to subdue imported sources of inflation,” according to the Ministry of Development Planning and Statistics (MDPS).

By Santhosh V Perumal
Business Reporter

The country’s annual consumer price index (CPI) inflation is expected to moderate to 1.5% in 2015 and stay firm in the subsequent year before edging up to 2% in 2017, according to Qatar Economic Outlook (QEO) 2015-17 Update.
Average inflation during January-October 2015 was 1.47%, somewhat below the full-year forecast in the previous QEO 2015-17 of June this year, and much lower than the consensus estimate reported at that time.
“Looking to 2016 and 2017, global deflationary pressures and a strong US dollar (to which the Qatari riyal is pegged) are expected to subdue imported sources of inflation,” said the update, released by the Ministry of Development Planning and Statistics (MDPS).
Moderation of population growth, expanded capacity in the non-traded sector and restraint in government spending plans are all expected to contain domestic price pressures, it said.
Foreign sources of inflation will be “conspicuously” absent until the tail end of the forecast period, with lower global commodity prices and stronger purchasing power of the domestic currency, it said, adding low forecast food and industrial input prices and the recent dollar appreciation, to which riyal is pegged, will help keep overall inflation in check.
Although risks of rapidly accelerating inflation seem contained at the moment, it said consumer price pressures would pick up if imported inflation gathered pace faster than the present forecast. A global commodity supply shock, a sudden depreciation of the US dollar or an unexpected global demand recovery would add to local price pressures, it added.
Moreover, the potential removal of other consumer subsidies, as part of the state’s efforts to rationalise spending, could push consumer price inflation up further still, it said, referring to Kahramaa’s decision to put in place a new pricing mechanism for utilities.
In the Middle East, the appreciation of the US dollar — to which most GCC (Gulf Cooperation Council) countries peg their currencies — and lower international food price growth have resulting in moderating inflation.
According to the International Monetary Fund’s Regional Economic Outlook for the Middle East and Central Asia, inflation in the GCC region will average 2.4% in 2015, down from 2.6% the previous year.

Hikes in prices of utilities may nudge up domestic inflation in ’16

The recent increases in the prices of utilities may nudge up domestic inflation, particularly in the summer months of 2016 but will make only a small impact on the headline consumer price index and will wash out of the inflation calculations before the end of 2016, according to Qatar Economic Outlook 2015-17 Update.
Kahramaa increased prices for non-Qatari households in September 2015, instituting slab rates for both water and power consumption. It also raised prices for government, commercial and industrial consumers.
Whereas residential water consumption was previously charged on a flat rate, five bands now exist with increasing rates per unit of consumption. In the case of electricity, the slabs have been expanded to six from the earlier two.
Progressive brackets of water and power consumer rates are similar to those already in place in Abu Dhabi, where government transfers were cut sharply last year when a new fee structure was introduced, the Ministry of Development Planning and Statistics (MDPS) highlighted.
“The new tariffs may result in an annualised average uplift of about 5.3% in charges for the representative residential consumer, but a low weight of electricity and water in the consumer price index means that this will barely register in headline consumer inflation,” it said.
Any impact on consumer price inflation will be transitory, fading after September 2016, it said.
The additional revenues will, however, lower the subsidy costs that the government shoulders for water and power consumption, it added.
These MDPS calculations make no allowance for the incentives that will be provided for greater economy in power and water consumption, nor for knock-on effects on the prices of consumer goods and services that may result from the higher charges faced by commercial and industrial users.