Inflation rate in Kuwait is expected to remain between 3-4 percent throughout the second half of fiscal 2012 with government subsidies and other forms of financial support yielding fruit, said the monthly report of Kuwait Finance House (KFH) on Wednesday.

The KFH report added there was notable drop in inflation rate in May when it came to 2.8 percent on the heels of said subsidies and sharp drop in credit volume with tougher lending policies adopted by banks. This is close to April's 3.3 percent amid global drop in food prices, coupled with stability in real estate prices and rent rates with surplus in supply.

The food stuff sector, which accounts for 18.3 percent of the consumer price index in Kuwait, saw a slight drop to 3.6 in May, compared to 6.3 in April pushed down by global drop in food prices.

Continued economic ambiguity and forecasts of continues ample supply pushed prices downwards. The Food and Agriculture Organization (FAO) food price index had been revised and brought down 1.8 percent month-on-month in June.

The KFH report added improvement in agricultural products supply according to World Bank estimates would lead to further drop in prices. "It is expected that price of agricultural products would drop 11 percent (annual basis) in 2012." Average price for wheat and corn for this year was expected to come down 9 and 12 percent respectively (annual basis) compared to 2011, and there would be drops in prices of other goods as well, according to the KFH estimates.

The report also said that average price of home products and services, which accounts for 14.7 percent of the consumer price index, slipped 1.9 percent (annual basis) in May, which indicates state subsidies and other forms of financial support to consumers are showing positive effect.

As for housing sector prices, which is the biggest chunk of 26.7 percent of the consumer index, the bank predicted inflation rate would remain at 1.6 percent amid drop in rents due to surplus in supply, both in residential and commercial real estate sectors.

The bank foresees further drops in rent rates for apartments and offices in the near future, with completion of many development and construction projects in the few coming years. It meanwhile noted a sharp drop in the number of approved housing loans as a result of local banks' enforcing tougher more reserved policies.