Reduction or Control of Inflation in the Region Not Likely In the Near Future

An official in the GCC Chamber’s Union estimated on Monday the rise in inflation in GCC member states around 3 percent in 2008 and will continue to rise for years.

Abdul Haleem Al Muhaisen, who is heading the Research Division at the Union, said that increasing the currency value or un-pegging them from the weak Dollar cannot relieve the inflationary pressures on GCC countries, unless it is coped with a reduction in spending and a strict monetary policy.

Al Muhaisen informed Reuters “We expect the increase of inflation in GCC member states of around two to three points percent in 2008 compared to 2007. In Qatar for example, it is expected that inflation will reach between 16 and 17% in 2008 from 13.7 back in 2007”. Kuwait is the only country within the GCC that does not peg its currency to the Dollar.

Inflation posts a key challenge in the region. Governments currently pegging their currency to the Dollar are increasing salaries and support, as well as trying to pose some restrictions over prices. In addition, limitations are firmly imposed on lending to reduce the effects of increased prices. Mr. Al  Muhaisen said: “Reducing inflation levels or controlling them in the near future is difficult, this is because the enormous effects of the external factors”. He gave an example of the situation in the Kingdom where 70% of the inflationary pressures come from outside the country. Inflation has risen in the Kingdom, the country with the largest Arab economy, to 9.6% last March reaching a record high since the seventies. The increase of food prices and the decrease in the Dollar value has had its toll on GCC states, and a lot of people began to feel the pressure of global increase in food prices in the time oil prices has reached six times its previous price in six years.

Mr. Al Muhaisen also said that: “In regards to dealing with inflation effects on consumers, the options are countless, since oil prices generate enormous wealth in these countries”.  He added: “The internal demand will continue because of the increasing prices of oil, which will in turn increase the inflationary pressures”.