Inflation easing in GCC region

Published February 25th, 2013 - 07:56 GMT
Inflation in the GCC region eased to three per cent last year, down from 3.7 in 2011 as food prices stabilised
Inflation in the GCC region eased to three per cent last year, down from 3.7 in 2011 as food prices stabilised

The GCC region witnessed a moderate three per cent inflation in consumer prices during last year, down from 3.7 per cent in 2011, according to QNB Group analysis.

This is relatively low when compared to the global average inflation of 4 per cent and the MENA region's 10.4 per cent, according to IMF estimates.

It was the fourth consecutive year that the GCC prices rose at only a moderate rate, following a period of higher inflation that peaked at 11.2 per cent in 2008.

The three most heavily weighted price categories in the consumer price indices (CPIs) across the region are housing costs, food and beverages and transport and communications, the Gulf Daily News, Trade Arabia's sister publication reported citing the QNB analysis.

These categories represent two-thirds of the CPI basket in the GCC and rose by 3.0 per cent, 4.5 per cent and 1.5 per cent respectively last year.

The prices of other goods and services rose on average by 2.7 per cent. Whereas devaluing currencies are an important driver of inflation in many MENA countries, the pegged exchange rate system in the GCC contributes to price stability , it added.

Subsidies, particularly on fuel, also shelter the GCC from a significant driver of inflation in some other MENA countries.

The increase in GCC inflation in 2008 was largely driven by bottlenecks in supply, particularly of housing, during a period of high inflows of expatriate workers and economic growth, as well as high global food prices.

However, over the last four years growth in rents has been much lower as most GCC housing markets have corrected, said the report.

Indeed, three countries Bahrain, Qatar and the UAE actually saw deflation in housing costs last year, for at least the third year in a row.

Total regional housing costs have only continued to rise because of high housing inflation in Saudi Arabia, up 8.1 per cent in 2012, where there is a housing shortage.

Food remains one of the leading drivers of inflation in most of the GCC countries.

However, food inflation has been considerably more moderate than in 2008, despite another global food price increase during the summer of last year.

This may be due in part to efforts since 2008 to diversify GCC food supplies, driven by food security concerns.

Although these efforts are at an early stage they may have gone some way to securing a more stable food supply.

Bahrain, Kuwait and Oman all had inflation that was close to the regional average.

The UAE and Qatar had lower inflation, of 0.7 per cent and 1.9 per cent respectively, which offset the higher 4.5 per cent inflation in Saudi Arabia.

These three countries deviated from the regional average mainly due to falling housing costs.-

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