Gulf businesses take inflation hit

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BODY BLOW: More than half of Gulf businesses say they have been adversely affected by rapidly rising inflation in the region. (Getty Images)

More than half of Gulf businesses have been badly hit by rising inflation, with costs increasing faster than they can be passed on to customers, an ArabianBusiness.com survey has revealed.

With inflation rising across the GCC, and predicted to hit a 20-year high of 12% in the UAE this year, 62.5% of respondents to the poll said the price of goods was rising too fast to be passed on.

Investment bank Merrill Lynch said last week inflation in Saudi Arabia could average 6% this year, compared with 4% last year, while in Oman inflation may rise to 7.2%, from 4.4% last year, and in Bahrain to 4.5% from 3%. Kuwait is also likely to see an inflation surge, while Qatar, which currently has the highest level of inflation in the Gulf at 14% last year, could see a slight drop due to an increase in housing supply.

UAE inflation could reach 12%, unless the dirham is revalued or depegged from the US dollar, the bank said.

Gulf states' peg to the dollar forces them to track US monetary policy at a time when the Federal Reserve is cutting interest rates to stimulate the economy.

With more US rate cuts likely, and Gulf central banks under pressure to follow to avoid currency appreciation, investors think GCC states will revalue their currencies or give up on their pegs to focus on fighting inflation.

9.4% of respondents told ArabianBusiness.com business was ‘standing still’, becoming more efficient but without being more profitable. 28.1%, however, predicted a bright outlook for 2008, saying they were coping ‘brilliantly’, and that they were able to pass on costs to customers.

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