We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Mon 3 Mar 2008 04:00 AM

Font Size

- Aa +

There’s no fun in facing the facts

UAE plans to update its CPI to reflect price trends more accurately could make for pretty gruesome reading for the masses.

Last week's announcement that the UAE plans to update its consumer price index to reflect price trends more accurately, and release data more regularly, could make for some pretty gruesome reading for the masses.

We all know that inflation is endemic across the region, but knowing exactly how much more we are paying for everyday goods might just send those of us who are already teetering on the edge, over it.

As the dollar hit fresh lows against the euro this week and with the prospect of more woe emerging from the US housing market, Gulf central bankers will once more be forced to revisit the question of whether to keep the dollar peg or dump it.

Alan Greenspan says it makes sense for Gulf states to allow their currencies to float freely. The octogenarian former Fed chairman, first appointed by Ronald Reagan in 1987, delivered his verdict this week in Abu Dhabi, blaming near-record inflation across the region on the much-maligned dollar peg, which he says limits the ability of the greenback-linked currency states to tackle inflation effectively.

So far the UAE and Saudi Arabia have been the strongest defenders of the peg while Qatar seems to be moving toward either a revaluation or a link to a basket of currencies.

No surprise that Qatar should be more willing to consider change when inflation in the country is higher than any of the other GCC states at around 13.7%.

For the Gulf states planning to create a monetary union with a single currency by 2010, the debate over the peg will be an interesting insight into how well the group of six manage to agree on matters of common economic interest.

Whether they ultimately decide to act in unison (as Kuwait did last May) or unilaterally to retain or drop the peg, free float their currencies, or move instead to a basket, they all face the common enemy of inflation - which to some degree is what this is all really about.

Inflation shows no sign of slowing within the economic powerhouses of the region. The rise in the cost of living is becoming an increasing worry on the streets of Doha, Dubai and Riyadh. It is the water-cooler topic that people never bore of.

It is encouraging skilled workers who are already in the region to leave while simultaneously dissuading potential recruits from outside the region, most significantly from the Indian sub-continent, from coming here. It is forcing governments to tell shopkeepers how much they can charge for selling water, rice and cooking oil.

The economic agendas of the GCC states are perhaps more closely aligned than more established economic communities in Europe, North America and Asia. So the case for them to work together to solve common problems should be all the greater - and there is no better issue to bind them together than how to stop inflation spiraling out of control.

Arabian Business: why we're going behind a paywall

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.