Inflation in Kuwait

A short history of inflation in Kuwait

The Basket Peg (2007 onwards)

Kuwait has one of the mildest inflation records anywhere, and the reasons are fiscal as much as monetary. A large sovereign wealth fund and oil revenue that comfortably covers public spending remove the pressure that drives inflation elsewhere, and subsidies hold down the domestic price of energy and several staples.

The currency arrangement helps too. Alone among the Gulf states, Kuwait pegs the dinar to a basket of currencies rather than to the United States dollar alone, which gives it a little insulation from American monetary policy when the dollar moves sharply. What variation there is tends to come from housing rents rather than from imported goods.

Post-Covid Inflation (2021 to 2023)

In Kuwait, prices rose fastest in April 2022, at 4.7%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.