High consumer prices raise concern

After many years of controlled inflation, the two countries have reeled under a sharp rise in consumer prices over the past four years mainly because of a steady decline in the US dollar against major currencies and a surge in domestic demand caused by accelerating growth and high oil prices.

From an average 2.9 per cent during 2001-2003, the annual growth rate of consumer price index in the UAE soared to 7 per cent during 2004-2006 and the rate is projected to peak at 12 per cent in 2007.

In 2006, Qatar suffered from the highest inflation rate in the Gulf and the third highest in the Arab world after Yemen and Sudan. But experts noted that inflation in these two Arab countries was caused mainly by weak economic performance and a decline in their currencies against major currencies.

Saudi Arabia, the world’s dominant oil exporter, appeared to be in control of domestic prices despite a surge in its economy over the past four years. Its inflation rate was around 2.2 per cent in 2006 and as low as 0.7 per cent in 2005. During previous years, when its economy was growing at a slower pace, it recorded negative inflation rate of -1.0 per cent in 2001, a zero rate in 2002 and around 0.6 per cent in 2003, according to Oapec.

Both Qatar and the UAE have blamed a surge in domestic demand, mainly for houses, for their high inflation rates. Officials in the two countries have voiced concern about high inflation, which has also drawn criticism from the IMF.

“Strong demand growth and housing shortages in the UAE have contributed to rising inflation, which is higher than in most other oil producers in the region,” the International Monetary Fund said in a recent report.

In press remarks last week, UAE Central Bank Governor Sultan bin Nasser Al Suwaidi blamed what he called domestic factors for the high inflation in the country. He said such factors included mainly a sharp rise in rents.

“The imported factors, which involve a decline in the US dollar, account for only 30 per cent of the inflation problem,” he said.

In Qatar, officials said a sharp increase in rents was the main reason for high inflation rates and they attributed that increase to a massive influx of foreign investors and to a large rise in the price of imported building materials.

Qatar’s Energy and Industry Minister Abdullah Al Atteya said the influx was a natural result of the massive LNG projects being carried out, citing plans by Total and other international oil firms to bring in thousands of employees for the projects.

“A study carried out by Qatar Petroleum showed that nearly 80 per cent of the inflation in the country is caused by a large increase in house rents, which have become a big burden on our economy,” Al Atteya said.

Official figures showed the Qatari economy has more than doubled over the past four years while real growth was projected at 11 per cent in 2006 and nine per cent this year. But nominal growth was far higher, peaking at 33.5 per cent in 2005 and 19.9 per cent in 2006.”