Inflation in Oman rises to record 13.2% in May

Annual inflation in Oman rose to a record 13.2 per cent in May as a global food crisis, high commodity prices and a currency peg to the weak US dollar pushed costs in the Gulf state higher for a 13th straight month.

Food, beverage and tobacco costs – which account for almost a third of the consumer price index – jumped 22.9 per cent, the Oman Ministry of National Economy said in a monthly report on its website. Inflation is soaring across the world's biggest oil-exporting region, where economies that have boomed on a more than seven-fold rise in oil prices since 2002 are getting bitten by higher import costs.

Oman and most of its neighbours, including Saudi Arabia, peg their currencies to the US dollar, which is driving up import costs.

"It's a vicious circle," said Giyas Gokkent, head of research at National Bank of Abu Dhabi.

"There is negative sentiment in the US financial sector outlook, which has resulted in a much weaker dollar and commodity prices have jumped," he said.

Inflation in Oman has been accelerating since May 2007, with the consumer price index jumping to 123.2 points on May 31, compared with 108.8 points a year earlier, ministry data showed.

The weighting of food in Oman's index is the highest in the region, said Gokkent, who expects inflation in Oman to hit 14.4 per cent at the end of December.

Annual inflation in Oman is expected to average 9.3 per cent this year, according to a Reuters poll in May.

Currency weakness is only part of the problem, as countries across the world suffer from high global commodity prices. Oil hit a record above $147 a barrel on Friday.

Inflation in Egypt hit levels above 20 per cent in June, while in oil exporter Saudi Arabia, inflation reached its highest in more than 30 years this year.

Rents, which account for just over 15 per cent of Oman's index, jumped 16.6 per cent, the data showed.

Gulf governments have increased price controls, boosted subsidies and raised employee wages in response to inflation.

Earlier this year, Oman's ruler ordered an increase of up to 43 per cent in state workers' wages.

Oman's central bank has raised reserve requirements three times in less than a year to force lenders to keep more money in their vaults as a means of slowing down money supply growth. Omani money supply, an indicator of future inflation, jumped 25.7 per cent in May. The country's nominal gross domestic product, the value of all goods and services produced at current prices, expanded 43 per cent in the year to March as the value of oil and gas sales increased.

Oman produced 69 per cent more oil in value during the period, the Oman Ministry of National Economy said on its website yesterday.