RISING COST OF LIVING HAS KUWAITI CONSUMERS

UNCLAS SECTION 01 OF 02 KUWAIT 000410 SIPDIS SENSITIVE SIPDIS DEPT FOR NEA/ARP, NEA/EX E.O. 12958: N/A TAGS: AFSN ALOW ECON ETRD PGOV KU SUBJECT: RISING COST OF LIVING HAS KUWAITI CONSUMERS GROUSING REF: A. KUWAIT 1772 ¶B. KUWAIT 285 ¶C. KUWAIT 295 ¶D. KUWAIT 305 ¶E. KUWAIT 332 ¶1. (SBU) The cost of living in Kuwait continues to rise, with prices for basic consumer goods, food, and rents increasing steadily. Recent press reports have highlighted rises in the prices of basic foodstuffs such as eggs, meat, and rice, and indicate growing consumer displeasure with the increases. Ministry of Planning figures indicate that the consumer price index rose 4.0% in 2006, but price inflation appears to have accelerated in recent months. This inflation is being driven by a variety of factors including increased government spending, government-worker salary increases, rapid population growth resulting in a very tight housing market, and depreciation of the Kuwait Dinar (KD) against other major currencies, excluding the U.S. dollar. According to the most recent statistics available from the private National Bank of Kuwait (NBK),the money supply (M2) increased a strong 2.8% in November 2006, representing the largest monthly increase in absolute terms since September ¶2003. With Kuwaiti imports representing over 40% of GDP, changes in the exchange rates of the KD against the currencies of Kuwait's major trading partners have impacted consumer prices. The vast majority of Kuwaiti imports are priced in euro, yen, British pounds, and U.S. dollars. During the last 9 months, the KD has depreciated 5.9% against the euro, and 7.3% against the British pound, while appreciating 1% against both the yen and the U.S. dollar, the latter a result of the KD's revaluation in May 2006 (Ref A). ¶2. (SBU) In the past 12 months the price of food has risen for nearly all staple food products. Although complete statistics are not available, post has noted the following anecdotal changes in food prices in markets around Kuwait City: local lamb has risen from $6.00/kg to $8.50/kg; beef from $5.15/kg to $7.00/kg; a small box of tomatoes from $1.80 to $3.50; apples from $1.20/kg to $1.80/kg. Because Kuwait imports nearly all consumable products, external factors such as the summer 2006 conflict in Lebanon have also contributed to price increases. The price of imported Lebanese fruit has risen more than 30% since the conflict. According to statistics from the Ministry of Planning, food sector price inflation was 6.8% in 2006, but press reports and anecdotal evidence suggest this figure is too low. ¶3. (SBU) Prices of locally produced food have also increased. Most visible has been the increased price of Kuwaiti eggs and poultry products, highlighted in press articles as causing significant frustration for Kuwait consumers. Muhammad Al-Mutairi, President of the Union of Cooperative Societies, which dominates the retail food sector, said that his organization may look to replace Kuwaiti-produced eggs and other products with imports if price hikes are not stopped. Imported eggs would be less expensive than the current price for Kuwaiti eggs, but still more than the price of local eggs six months ago. Part of the increase can be attributed to the recent culling of poultry chickens and a ban on the importation of live poultry as part of the GOK's response to an avian influenza outbreak (Refs B - E). ¶4. (SBU) Most severe has been the upward pressure on rents, which have risen more than 100% in the last 12 months in some areas of Kuwait City. A one-off salary increase for Kuwaiti government workers in 2006 targeted at easing rent concerns among Kuwaiti nationals is one factor cited by NBK as contributing to the ongoing inflationary pressures. According to figures from Kuwait's Global Investment House, in 2005 residential rents increased an average of 20-30%. Although 2006 figures are not yet available, Post has observed that rents for mid-level apartments, such as those occupied by Post's FSN staff, increased in many cases 100-125% in 2006, with FSNs being forced to move out to find cheaper rents in other parts of town. Skyrocketing rents are also affecting the Embassy's housing pool costs, with the GSO office observing rents 30-35% above 2006 levels. For example, houses that the Embassy rented for $4100 (KD 1200) per month in 2006 have risen to $5100 (KD 1500),and in some cases are as high as $6800 (KD 2000). ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/?cable s Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ KUWAIT 00000410 002 OF 002 ********************************************* LeBaron