Arab states suffered the highest inflation rate in the world last year as a result of soaring global prices, a decline in the national currency and massive pubic and private investment in some members, official estimates showed yesterday.
The combined Arab inflation rate accelerated to around nine per cent in 2007 from seven per cent in 2006 although some Arab nations recorded a decline in their inflation, the Inter-Arab Investment Guarantee Corporation (IAIGC) said in a study.
The 2007 rate was far higher than the average inflation rate of 2.2 per cent recorded in developed countries last year and the 6.3 per cent in other emerging and developing nations, the Kuwaiti-based IAIGC said.
"The acceleration in inflation rates in the Arab region was a result of higher global prices of food and petrol, a surge in domestic demand in some members due to an expansion in public and private investments, and supply bottlenecks, mainly in the housing sector," said IAIGC, a key financial organisation of the Cairo-based Arab League.
Its figures showed inflation worsened in 12 of the 19 Arab nations, which have provided inflation data while it slightly declined in seven member states.
Iraq had the highest inflation of 30.8 per cent in 2007 while the rate stood at 15.14 per cent in Yemen, 13.76 per cent in Qatar and 11.03 per cent in the UAE. The lowest inflation level was recorded in Morocco last year, at 2.04 per cent. It was followed by Tunisia at 2.9 per cent and Bahrain at 3.39 per cent.
A breakdown showed the Arab states that recorded an increase in their inflation rates as follows: the UAE, Qatar, Saudi Arabia, Bahrain, Algeria, Sudan, Syria, Oman, Kuwait, Libya, Egypt and Mauritania. Those which recorded a decline over 2006 were Jordan, Tunisia, Djibouti, Iraq, Lebanon, Morocco and Yemen.
"Only four member states recorded rates above 10 per cent last year. They were Iraq, Yemen, Qatar and the UAE," the report said.
Experts expect inflation to be higher this year, mainly in the UAE and its five partners in the Gulf Co-operation Council (GCC) due to increased public spending, strong demand, a surge in rents and food prices and the decline in the value of their currencies against other major world currencies because of the peg to the ailing US dollar.
Saudi Arabia, the largest Arab economy and the world's top oil exporter, is already suffering from record monthly inflation rates and local economists have forecast the annual rate to nearly double to more than eight per cent in 2008.
Despite such increases in their inflation rates, the causes of the problem in the GCC are different from those in other Arab states, such as Yemen and Iraq.
While an economic boom has been cited as a key factor for inflation in the Gulf, high rates in Iraq, Yemen and other members are a result of economic downturn, a sharp decline in the national currency value, conflicts and political uncertainty.
Given the peg between their currencies and the dollar, GCC states have been left with limited fiscal options to tackle inflation as they had to follow the Fed in cutting interest rates seven times in less than a year when they are supposed to hike rates to stem liquidity.