Business | Economy
Channel Sponsor
Gulf measures on inflation 'inadequate'
The true nature of imported inflation in the Gulf countries is masked to a great extent by government subsidies, wage hikes and price controls for many basic commodities.
- By Babu Das Augustine, Banking Editor
- Published: 00:11 May 4, 2008
Dubai: The true nature of imported inflation in the Gulf countries is masked to a great extent by government subsidies, wage hikes and price controls for many basic commodities.
However, any longer-term solution to inflation lies in monetary and fiscal reforms, said economists and analysts.
Food, rented properties, transport and communications have become dearer in the region, though their relative contribution vary across countries.
"Food represents 26 per cent and 36 per cent of the CPI baskets in Saudi and Kuwait, while accounting for 15 per cent and 21 per cent in UAE and Qatar, respectively. Food prices account for roughly half of Saudi and Kuwaiti inflation," said a recent report by NCB Capital, investment banking arm of Saudi Arabia's National Commercial Bank.
The new schemes to fight inflation announced by regional governments range from salary hikes, reduced government fees, new subsidies and price control on essential goods. Financial experts and economists said that while these measures will have only marginal impact on limiting inflation, the expanding government expenditure could result in further ramp-up in regional inflation.
"These measures are mostly seen to be inflationary and, with rising costs hidden by subsidies and transfers, domestic demand will continue to grow unabated," said Turker Hamzaoglu, EMEA macro strategist of Merrill Lynch.
According to Merrill Lynch, the proposition that inflation in the GCC is mainly driven by supply bottlenecks is true but not complete. Rapid economic growth, population expansion and lax fiscal policies fuel demand and exacerbate the supply bottlenecks at home.
Following the US interest rate cut by 25 basis points last Thursday, the Gulf states including the UAE and Saudi Arabia cut rates further loosening their domestic money supply. Saudi Arabia, which pegs its riyal to the dollar, cut its reverse repurchase rate by 25 basis points on Saturday, but continued a policy of keeping its benchmark lending rate steady.
When was the last time you received a salary hike? How did it help your monthly budget? Have you benefited from the recent price controls implemented by the authorities? What other steps can be taken? Tell us at letter2editor@gulfnews.com
Your comments
I work at a large government hospital managed by an American company, and there has been no salary increase to ex-pats in five years. Locals had a 100 per cent rise last year .This is not fair and many skilled staff are leaving with no one prepared to come to the UAE for poor wages anymore.
Ronlad
Abu Dahbi,UAE
Posted: May 04, 2008, 11:42
I guess the salary hikes are not happening but the prices for everything are getting higher. The rents are touching the sky but no solution has been given, leading to sharing homes. Why is there no solution for inflation? People who have already purchased homes have nothing to worry about but expatriates who have been staying for generations are facing serious issues. All the companies are asked to hike the salaries but they still want to get cheap labour and not pay more.
Niharika
Dubai,UAE
Posted: May 04, 2008, 10:45
If the inflation is rising at such a huge rate, at least our salaries should be increased to half the rate of inflation. I work for a MNC and last year's salary hike was 5 per cent, which was nothing compared to the increase in prices. The government should take some steps to help the private sector employees, as we are the most hard hit. Even we constitute to the huge population of working classes struggling to make ends meet.
Kavitha
Dubai,UAE
Posted: May 04, 2008, 10:31
Share this article
Popular in Business
-
Budget travel
Airlines in the region
Take a pictorial look at some of the budget airlines in GCC
Business Editor's choice
-
Credit swaps... a fair trade
Would you swap an unbuilt unit at the Lagoons for an apartment at JBR?
-
In pictures: New BMW Z4
The new model is much more user-friendly and driver focused
-
Lebanon realty robust
Overseas Lebanese fuel real estate surge
