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Thu 11 Oct 2007 12:08 PM

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Oman inflation hits 16-year high

Annual inflation in the sultanate accelerated to 6.47% in August as food costs and rents increased.

Annual inflation in Oman accelerated to 6.47% in August, the highest in 16 year, as food costs and rents jumped.

Oman, like other Gulf Arab oil producers, is struggling to contain inflation because its central bank traditionally follows US interest rate policy to maintain the relative value of its dollar-pegged currency.

The government considered measures including unshackling the rial currency from the tumbling US dollar and price caps to contain rising inflation but decided against such moves, the commerce minister said this week.

The consumer price index rose to 111.9 points on August 31, compared with 105.1 points a year earlier, data published on the Ministry of National Economy website showed. Inflation was 5.98% in July.

The food, beverages and tobacco component of the index surged 12.1%. Rents rose 7.5%, the data showed.

The dollar peg was partly to blame for rising inflation because the US currency's decline was driving up the cost of imports, Commerce Minister Makboul bin Ali bin Sultan said in remarks carried by the official Oman News Agency (ONA) on Monday.

The dollar fell to a record low against a basket of six currencies this month.

Rapid economic expansion, a construction boom, and the impact of record oil prices on transport costs were also to blame, bin Sultan said.

Inflation is rising across the Gulf Arab region, where a quadrupling of oil prices in the past six years is driving rapid economic growth.

Saudi Arabia's king asked officials last week to explain rising inflation, which hit a seven-year high in August of 4.4% from a year earlier.

In the UAE, the economy ministry took out newspaper advertisements this week to warn businesses against price hikes in the run-up to a Muslim holiday next week. Inflation hit a 19-year high of 9.3% in the UAE last year.

In May, Kuwait broke ranks with its Gulf Arab neighbours and dropped its peg to the dollar, saying the US currency's decline was fuelling inflation.

Oman, one of the five Gulf oil producers that agreed with Kuwait to peg its currency to the dollar to prepare for monetary union, was committed to keeping the value of its rial unchanged, the central bank governor said last month.

But like Saudi Arabia and Bahrain, Oman held back from reducing interest rates to match the September 18 cut in the US, saying domestic economic considerations took precedence when deciding monetary policy. - Reuters

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