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Oil price increase hits exporting nations too
The economies and standards of living of developing countries have been affected negatively by international inflation, especially where these countries' economies depend on the export of raw materials whose prices are fluctuating in the global market.
- By Dr Mohammad Al Soomi, Special to Gulf News
- Published: 00:00 July 7, 2006
The economies and standards of living of developing countries have been affected negatively by international inflation, especially where these countries' economies depend on the export of raw materials whose prices are fluctuating in the global market.
A key issue now is actually the high inflation rates in oil-exporting countries following big rises in the price of oil in the last three years, which has resulted from a number of external and local factors.
First is the rise in prices of imported goods due to price increases in the country of origin, which promotes higher inflation particularly in oil-exporting countries.
It is well known that the rise in prices in the country of origin is referred to as the multiplication of oil prices, impacting inflation rates in industrial countries the main supplier of the requirements of oil-exporting countries with regard to services and commodities.
Another factor lies in the huge investment opportunities resulting from the rise in oil prices and the announcement of giant projects in most countries in the region and the flow of foreign investments, which has led to a rise in the local demand for commodities and services.
The high increase in the local demand for residential and commercial properties, followed by the huge rise in prices within a short period of time, has been very prominent.
The third factor behind this rise lies with the hike in prices of the products which are manufactured locally, adding significantly to inflation rates, as most products which are manufactured locally depend on imported raw materials and sources of oil power.
Inflation worries
These and others have led to unprecedented levels of inflation in the oil-producing and exporting countries, according to studies conducted by important regional and international organisations such as the International Monetary Fund (IMF) and other economic organisations which are part of the UN.
The most important issue now is how to curb inflation rates on the one hand, and reduce its social and economic effects on oil-exporting countries on the other.
Cooling is the key
The key tool to control inflation rates lies with controlling prices of oil products in these countries themselves. It is well known that whenever prices of oil products rise, inflation rates will rise and the purchasing power of local currencies will decline.
So maintaining the prices of oil products or even reducing them will effectively contribute to maintaining acceptable inflation rates in general, although they will remain high compared with the past two decades.
Another important point is finding the required balance between supply and demand, especially in the property sector, as there is a huge increase in the population of UAE nationals and expatriates.
The current inflation rates in oil-exporting countries requires a solution to prevent any further negative impacts in the future.
This is simply because the potential consequences will have negative impacts on the economic situations in developing oil importing countries.
These countries are suffering continuous decline in their currencies against main currencies in the world.
International purchasing power therefore has also witnessed a continuous decline, affecting the general economic situation negatively. Such a situation will not encourage the attraction of foreign investments.
Factors which promote increased inflation rates especially high oil prices will remain for the period ahead, and therefore finding a solution to this problem, or curbing it as much as possible, by using the available economic tools, is considered an extremely important issue for the economies of oil-producing countries and the economic stability.
- The writer is a UAE economic expert.
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