The economic commentary from Qatar National Bank (QNB), issued at the end of July, suggested falling food prices had contributed to a fall in Qatar’s overall consumer price index (CPI), which fell to 1.4% in June, down from its peak of 3.8% in August 2014.
“The decline has been broad-based across all components of CPI, but low food price inflation has played an important role in the recent downward trend. The decline in domestic food price inflation has been driven by the fall in international food prices that has been taking place since 2012,” said the QNB report.
“The food component of CPI in Qatar, which has a weight of 12.6% in the CPI basket, is closely linked to the World Bank food price index... If the historical relationship between domestic and international prices persists, then we forecast that domestic food prices should rise only slightly in 2015 (0.2%) before picking up in 2016 (2.1%) and 2017 (2.6%),” it added.
As Qatar, like the other Gulf states, is almost entirely dependent on imports for its food production, global food price trends can have a significant impact on the country’s domestic food prices. But the QNB report noted that some local elements to the country’s food infrastructure diluted the impact of global prices.
“While food prices in Qatar are closely linked to global prices, there are factors which prevent the full transmission of international prices into the domestic economy. These factors include transportation, manufacturing and retailing costs as well as domestic policies limiting price increases on staple foods. These factors have been incorporated into our forecasts,” said the report.
“Furthermore, our outlook for Qatar’s food prices can be subject to surprises. Most notably, weather surprises carry the biggest uncertainty and can lead to a significant deviation from the World Bank’s forecasts of international food prices,” it added.
Global prices down 10%
QNB’s analysts identified three main factors behind the global fall in food prices seen in recent years: slower global economic growth, high levels of existing food stocks, and lower oil prices. According to World Bank figures, global food prices will fall by almost 10% this year, before rising by around 0.8% in 2016, and up to 3.8% in 2017.
“Global food prices have been on a downward trend since their peak in the summer of 2012. The World Bank food price index, which is tailored for emerging markets, has declined by 27.6% since its August 2012 peak,” said the QNB report.