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Wed 2 Jul 2008 02:36 PM

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Inflation shocks to continue

Price of goods and materials set to soar over next six months, taking toll on Gulf firms, survey finds.

Prices of goods and materials are set to soar over the next six months as global inflationary pressures take their toll on the region's companies, according to the Arabian Business Business Confidence Survey.

Almost one quarter of companies in the GCC (24 percent) predict that the annual rate of price rises over the next six month would be between 11 percent and 15 percent, with another 15 percent predicting that prices of goods would increase by 15-20 percent.

Over one-fifth of respondents (17 percent) said price inflation of goods and services their businesses need to operate would be above 20 percent.

However, while companies estimated that their costs will rise sharply, they do not expect to pass that all on to their customers - not in the next six months anyway.

Over one quarter of respondents (26.3 percent) said they expected to keep their prices the same, and over 60 percent of respondents saying they would increase their prices by less than 10 percent, inevitably cutting into profit margins.

The two most stable countries in the region according to the survey are Oman and Kuwait. Over 35 percent of Oman based businesses expect price rises of less than 5 percent, while 39 percent of business of Kuwait expect prices rises of 6-10 percent.

Kuwait is the only GCC country to have depegged its currency from the US dollar. That has allowed it to better control imported inflation - rising costs associated with buying goods internationally with a weaker currency.

Oman, however, remains linked to the dollar and it has seen 18-year inflation highs - although that has been largely a reflection on rising housing and food costs.

The UAE and Qatar were the hardest hit regarding price rises according the survey. Almost 40 percent of respondents from Qatar, and 33 percent of companies in the UAE, expect their cost of sales to increase by over 16 percent.

The Arabian Business Business Confidence survey was completed by over 500 respondents from across the GCC. The survey has found business confidence is falling across the GCC with Bahrain and the UAE the most pessimistic in the six-nation group.

The most optimistic nations were found to be Saudi Arabia and Oman.