Stable rents will limit the rise in inflation in Qatar, Oxford Economics said as the researcher projects the country's inflation to slow to average 2.6% in 2024.

Headline inflation rose to 1.7% in December last year, “defying” what Oxford Economics said of “expectations of a slowdown”, from 1.3% in November 2023.

Prices rose 0.9% month-on-month, the third highest monthly increase last year.

The key drivers behind the monthly rise were the food category and prices of recreation and culture, but clothing prices also surged. Housing, which has the largest share in the CPI basket were stable, leaving prices 2.9% lower than in the same month the year before. “This supportive base effect will continue in the coming months. Overall, inflation averaged 3% in 2023, slightly higher than the 2.9% we projected, but will slow to average 2.6% this year,” Oxford Economics noted.

After inflation turned negative in 2020, it climbed to 2.3% in 2021 and 5% in 2022 amid rising global food and energy prices and increasing demand in the runup to the World Cup.

In its latest country update, Oxford Economics said, “We now forecast average inflation at 2.6% in 2024, up from 2.2% in our previous projection, after it averaged 3% last year.

“Inflation was higher than we expected in December at 1.7%, pushed up by food, recreation and culture, and communication prices. We see no implications of this modestly higher inflation forecast for Qatar's monetary policy. Our revised baseline assumes the central bank will follow the US Federal Reserve in lowering rates once per quarter, starting in May.”

The researcher's updated baseline assumes interest rates will stay at 6% until May, when Qatar Central Bank starts to gradually loosen policy.

High borrowing costs will continue to undermine non-energy growth, notwithstanding supportive energy and fiscal trends.

Banks in Qatar, the researcher noted, “have been resilient and are well-capitalised and profitable, with low levels of non-performing loans.”

Due to improved domestic liquidity, banks' reliance on foreign funding has relaxed but is still high.

Qatar has passed various reforms to attract foreign capital, but diversification efforts across the region suggest competition, with all GCC countries trying to tap into a similar pool of resources and demand, Oxford Economics noted.
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