Inflation dips below 7%, stays near 16-year high

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INFLATION DIP: Cost of living in Oman drops, but stays near 16-year high. (Getty Images)

Annual inflation in Oman dipped below 7% in October but stayed near September's 16-year high as food prices in the Gulf Arab state, which pegs its currency to the weak dollar, rose 12%, government data showed.

Inflation was 6.84% in the year to October, compared with 7.1% in September, the Ministry of National Economy said on its website.

Food, beverage and tobacco prices, which account for almost a third of the index, gained 12% over the 12 months, slowing slightly from 14% in September.

The dollar's tumble to record lows against the euro and a basket of six major currencies in November has driven up Oman's import costs.

Some 5.2% of Oman's imports in 2006 were from the US, while 17.3% were from Japan, 5.1% from Germany, 5.3% from India and 3.4% from Britain, according to the 2006 Oman central bank annual report.

Commerce minister Makboul bin Ali bin Sultan said in October that Oman had considered measures including unshackling its rial currency from the US dollar and price caps to contain inflation but had decided against such moves.

Central Bank executive president Hamood Sangour Al-Zadjali said last month the country planned to keep its currency pegged to the dollar.

Dollar pegs force central banks in the world's biggest oil-exporting region to track US monetary policy. The US Federal Reserve has cut borrowing costs by 100 basis points since September 18, and most Gulf central banks have followed.

Domestic factors were also driving inflation, as rents, which account for 15% of the index, climbed 8%.

In September, Oman imposed a rent cap of 15% for the next two years.

A Reuters poll last week forecast that the average rate of inflation in Oman would fall to 3.9% in 2008 from 4.4% this year. (Reuters)

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