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High inflation in Kuwait a national challenge

KUWAIT CITY - Central Bank governor Sheikh Salem Abdulaziz al-Sabah warned on Wednesday that oil-rich Kuwait was faced with a "national challenge" after inflation hit 9.5 percent in January.

Sheikh Salem called for "coordination in various national economic policies to curb rising inflation," in a statement carried by the official KUNA news agency.

"Inflation constitutes a national challenge and was the result of local and foreign factors," he said.

The government Central Statistic Office said last month that the consumer price index in January hit 126.4 points, compared to 115.4 points a year ago, because of a sharp increase in housing services and the price of food.

The cost of housing services rose 16.1 percent in January compared to a year ago, while the price of beverages and tobacco rose 15.1 percent during the same period.

Medical care and education rose by 12 percent, household services 10 percent and foodstuffs by 7.7 percent.

The governor said inflation in Kuwait remained at around 1.1 percent between 2000 and 2004, and jumped to 4.1 percent in 2005 and to an annual average of 5.5 last year.

However, monthly inflation rates began rising rapidly since July last year.

Sheikh Salem said that a 6.8-percent rise in the population last year, mainly due to expatriates, had greatly boasted demand for housing and other services, leading to increased costs.

The number of expatriates rose to 2.34 million at the end of last year, compared to just 1.054 million Kuwaitis.

Sheikh Salem said monetary policy alone would not be able to contain inflation and other policies must contribute.

In May 2007, the Gulf state de-pegged the dinar from the dollar and linked it to a basket of currencies, with the dollar making up the largest component, in a bid to contain inflation aggravated by the depreciation of the greenback.

The dinar has since gained eight percent against the dollar but lost more than 10 percent against the euro and Japanese yen, which has fuelled imported inflation as a large portion of Kuwaiti imports come from Europe and Japan.