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Daily Economic Update
21.05.2025Kuwait: Inflation slows to a 4½-year low. Consumer price inflation eased to 2.3% y/y in April from 2.4% in March, reaching its lowest level since September 2020 amid more moderate price increases in food & beverages (4.6% y/y) and most other CPI sub-components. Marked inflation in food & beverage prices (of around 5% y/y and higher), especially in the fruits, vegetables, and meat & poultry sub-categories, has been a near-constant feature of the post-pandemic retail landscape. Meanwhile, housing services (mostly rents), the largest component by weight in the CPI basket, was unchanged at 0.7%. Core inflation, which excludes both food and housing, was steady at 2.4%. Inflation in both the clothing & footwear (4.1%) and communication (0.6%) categories softened, with the former continuing on its eight-month disinflationary path. However, ongoing deflation in the transportation subcomponent deepened, with prices falling 1.1% y/y. Only the services & miscellaneous goods subcomponent (4.9%) witnessed higher inflation in April, and this was likely due to a rise in gold prices. We expect overall inflation to stay on this moderate path amid subdued consumer spending growth, still relatively elevated interest rates and government fiscal consolidation efforts. Inflation could slow to an average of 2.4% this year from 2.9% in 2024.
UAE: Dubai’s inflation continued to soften in April. Consumer price inflation in Dubai continued to soften for the fourth straight month in April, coming in at 2.3% y/y, down from 2.8% in March and January’s four-month peak of 3.2%. The drop was partly due to a base effect following a strong (0.8% m/m) rise in prices one year earlier. Component-wise, there were slower increases in housing prices (7.0% y/y versus 7.2% in March), and a decline in transport prices (-7.6% versus 3.3%). On a monthly basis, prices rose by 0.3% in April, up from the slight decline seen in March (-0.1% m/m) due to a rebound in restaurants & hotels (1.1% versus -2.6%) and food prices (0.4% versus -0.4%). Inflation in Dubai is expected to soften over the remainder of 2025 on slower increases in housing rents and an expected fall in fuel pump prices.
Japan: Government to navigate economic headwinds amid trade tensions as long-term bond yields soar. Uncertainties are rising amid a decline in popularity of prime minister Ishiba’s cabinet, who’s approval rating has fallen to a record low (27.4%) on a widespread dissatisfaction with fiscal consolidation policies, which could signal a shift in the upper house elections in July away from the ruling Liberal Democratic Party with 21% saying that they had no party to support. Meanwhile, finance minister Katsunobu Kato is set to engage with the US treasury secretary during the upcoming G7 summit in Canada, aiming to reaffirm mutual commitments to market-determined exchange rates and to mitigate excessive currency volatility. However, chief trade negotiator Ryosei Akazawa has reiterated the country's firm demand for the complete removal of US tariffs on key exports, including automobiles and steel. On the monetary policy front, the Bank of Japan is advancing its monetary policy normalization efforts, having raised its short-term policy rate to 0.5% last January and the board decision in July 2024 to initiate a phased reduction of its bond-buying program, with plans to halve monthly purchases to JPY3.0 trillion by March 2026. This tightening has led to a notable uptick in yields on government bonds, with the 20-year yield currently at 2.54%, the latest auction logging the weakest demand since 2012 reflecting lower investor appetite amid the BoJ's policy shift. Recently a Bank of Japan board member issued a warning about rushing monetary tightening in light of the expectation of dissipating inflationary pressures in H2 FY2025 and sluggish real wage growth. Traders see a 63% chance of the BoJ hiking its key rate from the current 0.5% within this year, up from 52% a week ago.