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Fresh statistics indicate that inflation is increasingly becoming a serious challenge in the six-nation Gulf Cooperation Council (GCC).
These consequences include desire of a sizable proportion of expatriates relocating to other countries.
Still, Qatar has advised that it is considering increasing the value of its currency in the face of persisting decline in the US dollar.
Of all the GCC states, inflation is a serious problem in Qatar. Official statistics put the inflation rate close to 14 per cent in the last quarter of 2007.
Rentals and energy costs increased by a whopping 28 per cent in the fourth quarter of 2007. All said, consumer price index (CPI) amounted to 159 points in 2007 versus 140 points in 2006.
Still, it emerged recently that the inflation rate in Saudi Arabia reached seven per cent in January, the worst in more than 25 years. Yet, the figure compares unfavourably with that of 6.5 per cent registered by end-2007. According to the Central Department of Statistics, rents rose by almost 17 per cent in January.
At any rate, Saudi's CPI amounted to nearly 112 points by January 31, up from 104 points in the corresponding period in 2007.
Likewise, Oman suffers from growing inflation. The rate reached 5.9 per cent in 2007, up from 3.2 per cent in 2006 and 1.9 per cent in 2005. The inflation rate increased by a hefty 8.3 per cent in December 2007, one of the worst on record in the sultanate.
Persisting inflation pressures are blamed for adding to the economic headache facing employers in the region. The results of a survey conducted by Bayt.com and market research specialist YouGovSiraj should send shockwaves in GCC's job markets. Released in January, research findings suggested that salary increases are not keeping pace with the rise in cost of living across the region.
In the case of Qatar for instance, growth in the cost of living is put at 38 per cent versus 22 per cent rise in compensation. Not surprisingly, half of (foreign) employees surveyed in Qatar consider relocating to other countries or returning home.
By comparison, some 32 per cent of professionals surveyed in Kuwait considered making such moves. Still, the figures for Kuwait are the lowest within the GCC. Also, the study noted that some 45 per cent of workers in Saudi Arabia desire finding different jobs in the same industry while 19 per cent prefer switching to other countries.
Inflation is forcing decision-makers in the GCC to consider changing age-old economic principles. Only recently, Qatari Prime Minister Shaikh Hamad Bin Jasem Al Thani advised that his country was contemplating revaluing the riyal to make up for persistent drop of the US dollar (the euro traded for a dollar and a half for the first time last week).
The decline of the greenback is partly responsible for inflationary pressures hitting the regional economies. All GCC countries except for Kuwait have their currencies linked to the dollar. The Qatari premier suggested that the riyal is undervalued by as much as 30 per cent. Qatari officials are considering other means to help contain inflationary pressures including tightening rules on annual rental increases that landlords can charge tenants from 10 per cent to seven per cent per annum.
Many economists consider inflation as the worst possible enemy in any economy, more so than unemployment. The matter relates to that inflation affects all (worst for poor) while the same is not true of joblessness. Clearly, the matter applies in the GCC economies, as inflation is emerging as a nuisance. Still, it is feared that the worst is not over yet.
- The writer is a Member of Parliament, Bahrain.
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