Gulf inflation to continue to rocket

Across the Gulf, inflation is exceeding wage increases, leading to a significant erosion of purchasing power. (Getty Images)

Inflation in the Gulf is set to continue as the region prepares for a non-hydrocarbon future and important infrastructure work is completed, according to economists.

Across the Gulf, inflation is exceeding wage increases, leading to a significant erosion of purchasing power, reported a Dubai newspaper.

"The (recent) average cost of living increases were the highest in the UAE, Kuwait and Qatar, and have outpaced annual wage gains by more than 14%, 10% and 9%, respectively, signalling an acute deterioration of local buying power," Antonia Antonova, an analyst with Societe Generale Asset Management told the Gulf News.

Economists believe that it is the structural factors that are causing the price surge in the region. These will continue to have a medium to long-term impact as it is difficult to stop the reconstruction of the region's fast growing economies.

"The huge surge in regional liquidity has been channeled for economic diversification and infrastructure projects that have produced structural shortages causing general increase in prices," John Sfakianakis, group chief economist of the Saudi British said.

Antonova believes it is the huge amount of national infrastructure spending as well as economic spending on the non-hydrocarbon sector which means that the medium term outlook remains "tight".

"Both of these factors reflect various stages of economic restructuring underway in the region and neither factor can, no should, be easily reversed," Antonova said.

According to recent reports, official inflation rates in the UAE reached 9.3% last year, which can be attributed by the soaring rents, closely followed by escalating food prices.

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USER COMMENTS (2 COMMENTS)

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Inflation and gold
Posted by Fayyaz Alimohamed, Vancouver, Canada on 30 September 2007 at 23:00 UAE time

I used to be Director of Investments for a large Investment Group in Dubai. Since returning to Canada in 2001, I have seen global money supply rise in double digit numbers, far outstripping GDP growth. This has led asset bubbles in all markets and inflation. Gold will be the beneficiary of the upcoming recession to be caused by the declining US housing market and credit problems. I believe gold will soar in the coming years ($ 3,400 per ounce in the next 3 year, according to a leading Asian brokerage firm, CLSA)

Inflation is on
Posted by Mamdooh Al-Radadi, Jeddah, KSA on 30 September 2007 at 12:00 UAE time

The many factors that affect the inflation across the GCC have mostly been triggered recently. Nice article on the subject, but what we lack as with the previous stock shattering and real estate soaring prices that took the region by storm, is education. Most people in the region can only relate to what actually affects them directly. When you go to buy a usually fixed price item and find it has changed, you ask and you get the usual answer from the shop: "Everything is sky high these days." In Jeddah where I live we have witnessed small increments in prices of all kind of food and service industry items. If you get your coffee for let's say Sr4 a cup, and you find it has gone to Sr6 what does this mean? Coffee prices went up? Where were they when they actually did go up? A Sr2 increase is a huge 50% increase?! Take milk, sugar, rice..etc. these affect the people who really need it! Now what about the education part, do people know how governments and central banks control inflation? The stress incurred by people who live in the countries are two; financial stress & knowledge stress, it kills you and makes you feel powerless when you don't know what is going on!

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