Inflation in the GCC has been significantly lower than in most advanced and emerging market countries amid improved economic activity, driven by higher oil and gas prices, a report from Kuwait-based Kamco Invest has shown.
Gulf countries have varied food import sources that have helped them to weather food supply chain disruptions caused by the Ukraine conflict to keep the inflation lower, the report said. Government price caps on essential food items and fuel also insulated GCC households from steep food and fuel price rises.
Due to supply chain disruptions, higher commodity prices and the Ukraine conflict, inflation is continuing to climb around the world.
In the US, the consumer price index rose to a 40-year high of 9.1 per cent annually in June. Similarly, the inflation rate in the EU jumped 8.6 per cent in the same month.
the International Monetary Fund has said that inflation is forecast to average 8.3 per cent globally this year, with an aggregate of 6.6 per cent in advanced economies and 9.5 per cent across emerging market and developing economies.
“In its latest Regional Economic Outlook, the IMF said it expects GCC inflation rate to rise to 3.3 per cent in 2022 and 2.3 per cent for 2023. The IMF expects Kuwait’s inflation to average 4.8 per cent in 2022, the highest in the GCC,” Kamco said.
In Saudi Arabia, the Arab world’s largest economy, inflation is forecast to reach 2.5 per cent in 2022, the lowest among the GCC countries, Kamco said, citing the IMF report. The Washington-based lender also forecasts a 3.7 per cent inflation increase for the UAE and Oman and 3.7 per cent for Qatar and Bahrain, respectively, this year, the company said.
“It is expected that the inflation rate in some countries of the GCC will be affected by changes in the global prices of oil and food. As a result of global developments, as well as the impact of some countries increasing the VAT rate or implementing the tax, it is expected that the inflation rate in the GCC will average at 2.2 per cent in 2022 and 2.4 per cent in 2023,” Kamco said.
The inflation rate in other Arab oil-exporting countries outside the GCC including Algeria, Iraq, Yemen and Libya is expected to rise to about 11.4 per cent and 11.8 per cent in 2022 and 2023, respectively. As for the oil-importing Arab countries, the inflation rate is expected to reach 6.6 per cent in 2022 and drop to 5.2 per cent in 2023, Kamco said, citing Arab Monetary Fund data.
“Higher oil prices are also expected to help the GCC countries offset the effect that the US interest rate hike might have on their non-oil economic sectors,” it said and added that it will improve the domestic liquidity situation in the GCC and induce expansionary fiscal policies.
Oil continued to trade higher amid supply concerns due to Russia’s military offensive in Ukraine. Brent is up about 30 per cent since the start of the year to trade at slightly above $100 per barrel on Wednesday at 5.36pm UAE time.
The benchmark touched a 14-year high of about $140 per barrel in April following sanctions by the US and the UK on the import of Russian crude.
Saudi Arabia, the world's leading oil exporter, recovered strongly from the Covid-19 pandemic on the back of higher oil prices. In the first quarter of this year, the kingdom’s economy grew 9.9 per cent, recording its highest rate of growth in the past 10 years. The country's economy grew 11.8 per cent in the second quarter of 2022 driven by high oil prices, flash estimates released by the kingdom’s General Authority for Statistics (Gastat) on Sunday showed.
The IMF, in its latest forecast, estimated that Saudi Arabia's economy will grow 7.6 per cent in 2022 and 3.7 per cent in 2023, after expanding 3.2 per cent last year.
The UAE’s economy, on the other hand, is set to post its strongest annual expansion since 2011 after it grew by 8.2 per cent in the first three months of this year on higher oil prices and measures to mitigate the impact of the Covid-19 pandemic, the UAE Central Bank said.
The Arab world’s second largest economy, which expanded 3.8 per cent in 2021, is expected to grow by 5.4 per cent and 4.2 per cent in 2022 and 2023, respectively, the latest projections by the banking regulator showed.