Although in GCC countries there is no mechanism to link inflation rates and price increases with wages and salaries, these wages and salaries have witnessed successive increases during the past few years. This has contributed to reducing the severity of inflation and price increases.

The most recent procedures taken by some GCC countries is an important and correct approach for improving standards of living. Oman, for example, approved adding $2.6 billion (Dh9.55 billion) to its 2011 annual budget, while Bahrain approved a budget increase of $1 billion. In Saudi Arabia, royal decrees were issued to pump hundreds of billions of dollars into its annual budget, including $66 billion to be spent on housing over the next few years.

Saudi Arabian citizens were also granted an extra two month salary bonus, a step that aims to curb the effects of inflation on the lives of the people.

The markets responded immediately to these increases in public spending and increased wages by increasing prices, especially of food.

This was the result of a few external factors in the country of origin and speculation in the global markets.

However, there were also some internal factors that can be addressed in order to limit the impact of rising prices, which will help to maintain economic and social stability for the community.

Social stability

Among these internal factors is the issue of not informing suppliers and traders about the importance of social stability in developing and enhancing their operations and trade.

This comes at a time when the royal decrees were issued in Saudi Arabia and prices increased by 20 per cent in a matter of days, according to recent reports from Saudi Arabia.

This annulled the positive impacts of these important procedures because the payment of two months' salary constitutes a 17 per cent increase in an employee's annual income.

Based on previous experiences in the GCC, such fears were made possible the moment these increases in the royal decrees were issued. What was not expected, however, was that commodity prices would rise so quickly in such a short period of time.

In the past three decades, economic and social stability was one of the primary reasons that led to the GCC achieving high growth rates. This stability and growth reflected on all segments of society, including businessmen and traders, whose operations achieved steady growth. Living standards also improved noticeably for both citizens and residents.

Economic losses

It is in everyone's interest to maintain such stability and continuous growth. The economy and business environment was the first to suffer from the recent events in some Arab countries, which led to huge economic losses that were incurred by the business and trade sector.

It also seems like the suppliers and trademark owners are not aware of these facts, which might lead to a short-term increase in profits, but will reflect negatively on their activities and businesses in the long run.

This calls for conducting business in a wise and balanced manner, a characteristic that distinguished the region's market in the past and provided suitable conditions that contributed to transforming the GCC markets into important hubs that attracted shoppers and tourists.

Such a rational approach in dealing with the waves of price increases protects the public interest. This is because regulations do not allow for such supervision. Institutes that specialise in monitoring the market do not have the capability or power that allow them to curb price hikes.

Collective responsibility

This matter is a phen-omenon of global and local dimensions, and even though the GCC has addressed the global aspects of this issue by increasing wages and supporting staple commodities, addressing the local aspects of this matter is the collective responsibility of regulatory bodies, the business community and civil society institutions.

Approaches toward addressing this issue can be supported by legislation and regulations that contribute to finding suitable mechanisms for managing the relationship between inflation rates and living standards.

In turn, this will contribute to economic stability, enhance social ties, and ensure real growth rates enjoyed by the region.

 

Dr Mohammad Al Asoomi is a UAE economic expert.