Transport cost drives inflation higher

Even though the authorities capped the fuel prices at the November level, transportation showed a jump of 6.6 per cent, followed by education at 5.1 per cent

Even as economic growth accelerated in the first quarter of the current year, rising inflation and a slowdown in the global economy loom as downside risks.

Inflation has risen in recent months against the backdrop of higher commodity and global food prices caused by the Russiaukraine conflict.

In the Sultanate of Oman, however, transport continues to be the major driver of the rise in inflation, although the country has not become immune to the global trend. Foodstuffs and nonalcoholic beverages rose by 4.9 per cent at the end of the first quarter.

Even though the authorities capped the fuel prices at the November level, transportation showed a jump of 6.6 per cent, followed by education at 5.1 per cent in the March consumer price index.

Surprisingly, the health group recorded only a 2.9 per cent rise in the March inflation data released by the National Center for Statistics and Information. But foodstuffs and non-alcoholic beverages rose by 4.9 per cent.

The state-run statistics agency report said that the lowest inflation rate of 2.9 per cent was recorded in the Governorate of Muscat in March 2022, compared to the same period in 2021.

The costs of housing, water, electricity, gas, and fuel prices went up by 2 per cent. The furniture, fixtures, household equipment, and regular household maintenance costs increased by 1.2 per cent and the restaurants and hotel spending group by 1.1 per cent.

However, an April update by the World Bank showed that Oman’s annual inflation switched from negative territory in 2020 and picked up to an average of 1.5 per cent in 2021 due to the introduction of VAT last April.

Since GCC countries are dependent on imports for their food, sustained upward pressure on international food prices could pose a challenge for policymakers in the region.

“Energy prices have risen by more than expected and some of the pandemic-sparked supply chain disruptions have persisted into 2022, presenting a particular challenge for heavily importdependent countries like the Gulf states”, said a recent report by PWC.

The 16th edition of the Arab Economic Outlook Report released by the Arab Monetary Fund (AMF) pointed out that some inflationary pressures are expected to emerge due to the anticipated increase in aggregate demand levels.

“The rise in consumption tax rates in some Arab countries, the depreciation of some Arab currencies against major currencies, and the impact of other inflationary factors that vary from one Arab country to another can cause inflation”, the report pointed out.

In the first week of the current month, the central banks of Saudi Arabia, the United Arab Emirates, Qatar and Bahrain raised their key rates by 50 basis points (bps). The Central Bank of Kuwait said it increased its discount rate by 25 bps to 2 per cent.

All Gulf countries have their currencies pegged to the US dollar, except Kuwait, which pegs the Kuwaiti dinar to a basket of currencies that includes the dollar.