Hot like a cat on a hot tin roof

I can sense a revolt taking shape at home; I mean my home. It started with a crude cost-saving measure I tried to impose on our pet cat by introducing her to home-made food.

My idea was to effectively respond to the high price of cat food through a home remedy by substituting it with dinner leftovers. The cat rejected the idea outright. The rest of the family thinks I am camouflaging my stinginess with another inflation story.

The cat has forced me to take another look at my understanding of regional inflation. The latest figures from across the GCC suggest that inflation is indeed moderating across the Gulf countries. While the inflation rate still remains in double-digit territory, there has been a slowdown in its rate of growth, according to the official data.

The latest inflation figures from Saudi Arabia confirm this trend, with its cost of living almost unchanged from the previous months. The consumer price index rose 10.6 per cent on an annual basis for the month of June compared to 10.5 per cent in April and 10.4 per cent in May.

Kuwait reported that the inflation rate fell to 11.1 per cent in May from 11.4 per cent in April. Qatar, with the highest inflation in the GCC, at 14.8 per cent in the first quarter, reported a slowdown to 13.8 per cent at the end of the second quarter. The UAE which reported 11.1 per cent inflation last year expects the rate to be around the same level this year.

On the exchange rate front too there are thin rays of hope on the horizon, as the US Fed decided to keep the interest rate unchanged at two per cent, rather than cut again. Low, but at least not lower still. A stronger dollar is likely to reduce the impact of imported inflation (under the prevailing system of pegged forex regimes) and reduce the influx of liquidity into the region expecting revaluation.

The signs of deceleration in inflation are indeed welcome news. However, looking at the regional economic fundamentals, it may be too early to declare any sort of final victory over the looming price leviathan.

On the fiscal policy side, the massive increase in GCC oil revenues from $95 billion in 1999 to an estimated $600 billion in 2008 has allowed Gulf governments to develop a vast programme of infrastructure investment.

Growth has been fed by such demand, but the flip side of this upsurge has been a sharp pick-up in prices due to supply constraints.

Food prices represent a large part of the consumer price basket in the GCC. The regional governments' approach to addressing the socio-political issues arising from rising food prices has resulted in wage increases and a host of subsidies, which are likely to add to inflationary pressures via stronger domestic consumption.

That simply means that all those factors drive inflation are still alive and kicking. Inflation itself continues, and even if its rate stabilises, it will be the current high levels. Effectively, this is not much of a consolation for Gulf consumers who are like the proverbial cat on a hot tin roof, struggling to adjust to the inflation heat, while hoping for some morsels of sustenance.