Qatar’s inflation expected to moderate substantially in 2023 on drop in rents, recreation expenses

Qatar’s inflation is expected to moderate substantially on anticipated rent fall and a drop in recreation expenses, PwC said in a report.Qatar has not been immune to global inflationary pressures and domestic factors also contributed in 2022 with the run-up to the World Cup. Inflation peaked at 6% in September 2022 when it was the highest in the GCC, although this is still well below the levels seen in the US and Europe, easing to 5% in October.The anticipated increase in demand for accommodation for people attending the World Cup understandably put pressure on rents, which grew by 11.5% y/y in October 2022, the most since 2008, PwC said in ‘Qatar Economy Watch’.However, this came after a long period of falling rents, including during the pandemic, and in fact they only returned to early 2019 levels.In any case, it is expected that rents will likely ease once again this year, given the anticipated population decline; the fact that the real estate market remains muted – prices were actually down 3.8% year-on-year (y-o-y) in September 2022 according to QCB’s index – supports a moderation in rents.By contrast, the last time rent inflation was high, at 9% in September 2014, real estate prices were rising by 42% y-o-y. While some tenants have had to sign lease agreements for two-year periods, analysis suggests that rent prices will return to 2020 levels during the year 2023.The major contributor to inflation in 2022 was, perhaps surprisingly, not rents but recreation, a component of the consumer price index (CPI) which is heavily driven by air travel.It also received a local boost due to the World Cup on top of the overall post-pandemic recovery in air travel.Recreation prices were up by 31% y/y on average in January-October 2022, having previously declined by 16% in 2020, reaching record levels.Recreation has an 11% weight in Qatar’s CPI, more than triple the average for the rest of the GCC and accounted for more than half of inflation in October.Food and transport, which have been the major drivers of inflation globally, have had little impact in Qatar because of subsidies and the disinflationary impact of a strong riyal on imported prices.Excluding both recreation and rents, inflation in Qatar in October 2022 would have been close to zero.This suggests that in 2023, if these components stop increasing, or even fall, then overall inflation in Qatar should be quite low, even potentially negative.The IMF forecasts that inflation will average just 2.1% in 2023-27.Qatar has consistently topped rankings related to the cost of living, which affects its attractiveness as a destination for both FDI and skilled labour, and so a moderation in inflation, contrary to most countries, should help boost competitiveness. Efforts to lower the cost of living and doing business are also expected to feature in the government’s economic agenda for 2023 and beyond, PwC noted.