Business | Oil & Gas
Inflation threat mounts as oil races towards $150
Oil's rapid acceleration toward $150 a barrel threatens to spur Gulf inflation to new records as currency pegs to the ailing US dollar prevent the oil producers from mopping up excess liquidity.
- Reuters
- Published: 23:39 June 8, 2008
Dubai: Oil's rapid acceleration toward $150 a barrel threatens to spur Gulf inflation to new records as currency pegs to the ailing US dollar prevent the oil producers from mopping up excess liquidity.
As Gulf central bankers prepare for a key meeting in Doha today, the oil price surge places more pressure on Gulf states preparing for monetary union to follow Kuwait's lead and revalue their currencies to fight inflation.
Oil jumped nearly 9 per cent to a record $139 a barrel on Friday - and could top $150 in less than a month as strong demand in Asia triggers a slowdown in shipments of crude to the United States, investment bank Morgan Stanley said last week.
For Saudi Arabia and the five other states that form the world's biggest-oil exporting region, rocketing oil revenues could drive public spending, fuelling money supply and stoking inflation in economies that doubled in size from 2002 to 2006.
But Gulf states - bar Kuwait - are constrained in their fight against inflation by dollar pegs which have forced them to track seven US interest rate cuts totalling 325 basis points since September.
"All of the shocks of high oil prices are being absorbed by the real economy rather than the exchange rate or interest rates," said Marios Maratheftis, regional head of research at Standard Chartered Bank.
"Prices show no signs of slowing down." Inflation in the kingdom, the world's biggest oil-exporter, hit an at least 30-year peak of 10.5 per cent annually in April, while in Qatar, the world's largest exporter of liquefied natural gas, prices soared at an annual rate of 14.75 per cent in the first quarter.
Prices will rise by an average of 9 per cent in most Gulf states this year as rents and global commodity prices surge, a Reuters poll showed last month.
But high oil prices cannot alone be blamed for inflation, analysts said.
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