Save for the Kuwaiti Dinar, the other five GCC currencies are pegged to the dollar and which has often sparked a controversy among economists over the feasibility of such a link. There are positive — and negative — factors from the peg, as is the case with other economic and monetary issues.

Over the last 10 years, the dollar has seen successive bouts of decline, due to the weak US economy and the high cost imposed by the US wars in Afghanistan and, later, in Iraq.

However, the prolonged Eurozone crisis, Japan’s economic stagnation for an extended period and the recent talk of the possibility of raising US interest rates have together helped the greenback regain some of its vitality. The US currency rose by 9.5 per cent against euro and 7 per cent against the pound, which itself was affected by the recent referendum on Scotland’s separation from the UK. The dollar is now at its highest level in six years.

During the period when the greenback was on softer side relative to other currencies, prices of goods and services increased in those countries which had pegs to the dollar, and which in turn led to inflation rates inching higher. Of course, other factors, apart from the dollar situation, contributed to the inflation hikes. These relate to the high prices in the country of origin for imported goods and the volatility in fuel prices.

As the GCC’s imports from the EU and Japan comprise 50 per cent of its total imports, prices of imported goods from them are expected to drop in varying proportions that reflect the current strength of the dollar. For the dollar-pegged Gulf currencies, this constitutes one of the expected positive aspects.

There are also indications about the possibility of a drop in prices of commodities in the GCC markets. While these are yet to materialise, one cannot but help notice the attractive promotions offered by car dealerships, especially those representing Japanese brands and who now offer prices lower than a year ago.

Although it is difficult to forecast price trends in the coming period. Especially because there are always other factors that have an impact, such as population increases which lead to growing domestic demand, any increase in the standard of living, and rising prices of some commodities in global marketplaces. But the impact of such factors remains lower than that of a higher dollar value against other major currencies.

Therefore, the Gulf markets can expect price fluctuations on goods imported from the EU countries, the UK and Japan. Such changes are expected to be on the declining side as a logical response to the changes in GCC currency exchange rates vis-à-vis the euro, the pound and the yen.

Such a development happens only if suppliers deal with the issue in an objective manner, and a the new formula would help increase their sales and profits. But, if they insist on keeping prices unchanged, their competitiveness will drop due to the change in the value of imported goods from other countries, especially since there is a noticeable increase in GCC’s imports from China, India and Brazil.

On their part, the ministries of economy and trade in the GCC countries can monitor the price index and changes in currency exchange rates. They can promote the creation of a balance between these dynamics, which would help reduce volatility in the prices of goods and services as well as curb inflation rate gains.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.