RIYADH: Central banks are currently struggling to avoid raising the interest rates amid higher inflation in Western countries. But according to Erik Lundback, a senior economist at the International Monetary Fund, the Gulf Cooperation Council countries have somehow managed to maintain the same interest rate levels. Lundback made these remarks during a virtual conference recently organized by the Arab Gulf States Institute in Washington. “The rising cost of living in the GCC is similar to what we see in other emerging markets, but at a much slower pace,” Alia Moubayed, MENA and Pakistan chief economist at Jefferies, an investment bank based in London, told Arab News. Inflation in Bahrain, for example, is the lowest among the GCC states with nearly zero percent, followed by Saudi Arabia and the UAE where price rises averaged an annual 1.2 percent and 2.3 percent, respectively over the last 3 months, according to Jefferies. But this is not the case among other GCC states. Qatar’s inflation reached 5.5 percent, followed by 4.3 percent in Kuwait in December 2021 and 3.5 percent in Oman at the end of November of last year. “Higher inflation in the GCC will negatively impact consumption, a key driver of gross domestic product growth in most countries,” Moubayed said. She noted that a higher cost of transport will ignite a second round of inflationary effects and could push toward more generalized price level increases, across the consumer baskets. “Higher general price inflation could push countries to slow down their plans to phase out untargeted subsidies and restructure their spending,” Moubayed noted, adding that this could prompt governments to increase spending to support poorer households. She did not rule out the possibility that housing prices would jump significantly due to supply and demand imbalances in most GCC markets. In Saudi Arabia, the wholesale price index posted an annual 12.5 percent rise in the fourth quarter of last year, according to the Kingdom’s central bank, also known as SAMA. Its consumer price index rose 1.2 percent in January from a year earlier, driven by transport, which registered the highest year-on-year increase of 6.4 percent. Education costs also went up by 4.8 percent, while recreation and culture prices rose by 2.1 percent. However, housing, water, electricity, gas, and other fuels registered the biggest year-on-year decrease of 1.8 percent in the final quarter of 2021, according to the Saudi central bank. In the UAE, consumer prices edged 0.02 percent over higher on the previous month in December, according to Focus Economics. Inflation came in at 2.5 percent in December, with the economic body’s panel of experts expecting prices to grow by around 1.9 percent in 2022. “The key drivers of inflation in the GCC over the past few months have been food, and transport price increases,” Moubayed said. This has been the case in Kuwait, Oman, Qatar, Saudi Arabia, and the UAE as global commodities prices surged. Countries where fuel prices are already liberalized or where the phase-out of fuel subsidies continues, witnessed a surge in transport-related costs, notably in the UAE, Oman, Saudi Arabia, and Qatar, according to her. Monica Malik, the chief economist at Abu Dhabi Commercial Bank, who also spoke at the event, added that inflationary pressures are building in the region. Malik said: “Given that we are importing goods, we are affected.” She noted that rising global inflation and high energy prices are impacting the region, mainly through higher food, fuel, and transportation prices. However, Saudi Arabia and Qatar have nonetheless introduced caps on prices in specific categories. Despite these challenges, inflation in the GCC remains on average lower than both in the US and Europe. Moubayed said: “Average GCC inflation stands at around 2.8 percent year to year at the end of 2021. This compares to an annual 7.5 percent in the US registered in January, and 5.1 percent in the European Union.” But Lundback warns that despite regional sovereign funds and reserves acting as a buffer to global pressures, GCC countries over the long term still have to broaden the revenue they generate from a wider range of industries. Copyright: Arab News © 2022 All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info). Disclaimer: The content of this article is syndicated or provided to this website from an external third party provider. We are not responsible for, and do not control, such external websites, entities, applications or media publishers. The body of the text is provided on an “as is” and “as available” basis and has not been edited in any way. Neither we nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this article. Read our full disclaimer policy here.