Consumer prices in Bahrain edged down slightly in July. However, economists said the severity of drought in Russia and the extend of floods in Pakistan would eventually put pressure on food prices in the Gulf Arab region that depends on imports for much of its supply. Annual inflation in the kingdom slowed to 2.1 percent, the lowest level in four months, from 2.3 percent in June, data from the Central Informatics Organization showed on Thursday. Consumer prices fell 0.2 percent on the month in July, after a 0.1 percent rise in the previous month due to less expensive food. “We are seeing a bit of a negative trend. Demand is not on levels which would mean a gradual return to growth,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. Food prices in Bahrain dropped 2.0 percent month-on-month in July, after inching up 0.1 percent in the previous month. Transport price growth slowed to 0.4 percent, from 0.7 percent in June, while housing costs were flat after a 0.1 percent rise a month before, the data showed. Inflation remains subdued across the Gulf, the world's top oil exporting region, with an exception of Saudi Arabia where lack of housing drives up rents. Analysts said, however, food prices may push inflation rates up in the coming months. “Real problems are emerging now on the food side … after the problems in Russia and now the floods in Pakistan, a major source of grain for the Gulf,” said Jarmo Kotilaine, chief economist at NCB Capital. Russia's worst drought in over a century has destroyed crops over large areas, sparking wildfires, which have forced up world grain prices. In Pakistan, massive floods devastated crops and damaged up to 600,000 tonnes of wheat stocks. “I would still expect food prices to tail off a little bit later this year and food inflation to fall away and a disinflationary process towards the end of the year,” said Daniel Kaye, senior economist at the National Bank of Kuwait.
