The International Monetary Fund (IMF) has stated that it expected the average Gulf Arab inflation levels to increase in 2008 to 8% from 7% in last year. Inflation has been a major problem in the Gulf arab region with migrants workers protesting and import prices increasing due to the dollar peg by Arab countries. As the US Dollar loses value the Gulf countries are forced to lower rates in succesion to the US’s Federal Reserve.
“The inflation rate in the Gulf was around 7 percent last year and we expect it to be seven to eight percent this year… On the demand side, there is a big push to expand government spending and liquidity is high in the system, which means people have more access to liquidity and more access to spending power”
- Mohsen Khan, IMF director of the ME
The US Dollar has reached record lows this year against the Euro and a basket of major currencies. Mohsen Khan urged the Gulf Arab’s five remaining countries to retain their dollar pegs, “for the time being.”
”I think the GCC currencies should remain tied to the dollar because I believe moving away from the dollar will not help inflation very much … in fact it may cause more liquidity to come to the region“
- Mohsen Khan, IMF director of the ME
The Gulf Cooperation Council (GCC) countries have already done the following to curb rising inflation in the region:
- Tightened bank lending curbs [2]
- Raised subsidies
- Slashed customs levies
- Introduced rental caps
Inflation in the GCC
Bahrain & Kuwait: Rise in Food + House price/rent.
Oman: Rise in Food.
UAE & Qatar: Rise in Housing , food is catching up.
Saudi: Rise in food + Services.
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Causes of Inflation:
High Demand and low Supply.
Private Sector Loans.
High Oil Prices forces exporter to raise prices.
Link to $.
Possible Solutions:
Lowering Government spending, and minimizing its product support.
Increase the Real Estate & Services projects to increase the Supply.