Following forecasted subdued inflationary pressures in Kuwait throughout 2018, inflation will rise in 2019 following the implementation of value-added tax (VAT) in 2019, according to a new report from BMI Research.

In the report, BMI noted that Kuwaiti inflation is likely to remain lower than previously anticipated in 2018, with average and year-end inflation forecast at 1.2 percent and 1.5 percent, respectively.

The report added that month-on-month price growth has been negative for the last three months,

and that “persistent political gridlock” and higher oil prices have led the government to delay the implementation of VAT and decide against raising the subsidised price of oil.

If VAT is implemented in 2019 as is planned, BMI forecasts year-end inflation to rise to 4.5 percent and average inflation to 4 percent.

In neighbouring Saudi Arabia – which implemented VAT this year – inflation rose to 3 percent from -1.1 percent in December, while price growth increased to 4.8 percent from 2.7 percent over the same period in the UAE.

Against this backdrop, BMI believes the Central Bank of Kuwait to mimic the US Federal Reserve by making a further 5 basis points worth of hikes in 2018 and 50 more in 2019, taking the policy rate to 3.5 percent at the end of 2018 and 4 percent at the end of 2019.