Analysts cautious on Gulf inflation outlook

Dubai: Despite a pause in the increase of consumer prices across the Gulf countries in May and June, economists and analysts said it is too early to conclude that the region's inflation will now begin to decline.

"These latest figures represent a pause in the worsening inflation trend that has recently gripped the Gulf economies. However it is too early to affirm that inflation has already peaked as the pressures on these economies are still very high," Philippe Dauba-Pantanacce, senior economist at Standard Chartered Bank, UAE said in a note yesterday.

The dollar continues to be weak and the influx of liquidity into the region remains in place. Social demands have resulted in large public sector wage increases, which are likely to add to inflationary pressures later this year via stronger domestic consumption. Demand bottlenecks arising from massive economic expansion are also contributing to the price pressures. It is too early therefore to say that the worst of the inflation has passed.

"On the fiscal policy side, the massive increase in GCC oil revenues, from $95 billion in 1999 to $310 billion in 2007, has allowed Gulf governments to develop a vast programme of investment in infrastructure. While such investment is positive for growth sustainability in the medium-long term, it has contributed to boosting the demand side in the short term," said Yvan Mamalet, an analyst with Société Générale Asset Management.

Kuwait's inflation stood at 11.08 per cent in May after a multi-month rise that peaked in April at 11.4 per cent. Bahrain's inflation was at 3.1 per cent in June after a peak of 6.2 per cent in April according to the kingdom's Central Informatics Organisation.