MANAMA, 15 May 2008 — Growing inflation and price control mechanism put in place by the regional governments will have serious consequences, experts warned yesterday.
According to a panel of experts from StanChart, the headline inflation in Saudi Arabia, Qatar, UAE and Oman is in the double digits. “Food price inflation in the UAE hit 27 percent and 14.2 percent in Saudi Arabia.
The experts said that the GCC can reduce the impact of food price inflation through currency reform.
However, with global food prices climbing, this will be a burden the region will have to bear.
“The GCC is heavily reliant on the rest of the world for food. Its arid climate makes it difficult to be self-sustainable. Saudi Arabia is one of the largest rice importers. Egypt is the largest importer of wheat. The UAE imports 90 percent of its food.
With shortages and global food prices on the rise, the GCC and the rest of the region is suffering. The depreciating US dollar has made food even more expensive for the dollar-linked countries.
“Food price inflation has exceeded headline inflation in these countries. The policy response by the GCC to the rise in food prices has been through price controls and subsidies on basic goods including rice, milk and flour.
However, the problem with price controls is that it creates market distortions.
“Saudi Arabia and Oman could suffer serious social implications with the rise of food price as GDP per capita is around $15,000 for these two countries. Riots in Egypt, the most populated Arab country, and Yemen because of the rise in food prices, underline the sensitivities involved.
The situation will only get worse as several countries including Egypt, India, and Thailand have limited the amount of rice exports in the coming months. Saudi Arabia has decided to invest in agricultural technology to become more self-reliant in the future. However, policies like these will take time.
“In Bahrain inflation which usually averages around two to three percent has risen to 4.6 percent in January. Money Supply (M3) has risen by 40 percent y/y in Q1 2008.”
