The Central Department for Statistics and Information (CDSI) has released CPI data for December showing inflation remained at the 3.9 per cent year-on-year level observed in the previous month.

"This puts the annual inflation for last year at 4.5 per cent-year-on-year in line with our forecasts. For 2013, we expected inflation to be mainly driven by rent and housing related services as well as food prices," said Jadwa Investments in a report.

"While the latter is expected to likely be less of a concern as international food prices are slowing down, we expect rent and housing related services to continue the current gradual downward trend," it continued. "Government housing initiative is likely to reduce pressure on such component, but we do not expect such effect to materialise before next year. As such, we expect inflation in 2013 to reach 4.3 per cent year-on-year down from 4.5 per cent last year.

"In December, rent and housing-related services maintained their gradual downward trend, to 6.3 percent year-on-year, compared with 6.5 per cent in the previous month. Despite its gradual decline, rent and housing-related services remained the highest contributor to overall inflation adding 1.5 percentage point to the December inflation print. For 2012, the rental inflation registered 8.1 per cent year-on-year compared with 7.8 percent in 2011. The increase is mostly due to higher inflation in the first half of the year.

"Food prices accelerated to 5.1 per cent year-on-year in December compared with 4.8 per cent in November. Within the food category, prices of cereal and cereal products maintained their deflationary trend contracting by 1 per cent despite a 14.7 per cent year-on-year increase in international cereal prices. The divergence in trend between international and domestic prices is mostly due to domestic subsidy policy which maintains stable prices for essential food items.

"Monthly inflation slightly slowed to 0.2 per cent in December compared with 0.3 per cent in November. Fabrics and clothing posted the highest increase, 0.7 per cent, but this has a relatively small weight in the CPI basket. Monthly rental inflation slightly increased to 0.4 per cent compared with 0.3 percent in November. Food monthly inflation, however, decelerated to 0.2 per cent in December from 0.7 per cent the previous month; in line with trend of the international food prices."