Muscat – Households in Oman and other GCC countries have been insulated from rising global inflation due to government measures that capped prices of fuel and essential commodities and diversified food import sources.
Most of advanced and emerging market economies are dealing with soaring fuel and food prices this year. Global inflation has sharply increased driven mainly by the Russia-Ukraine conflict and supply problems due to COVID-19 related restrictions implemented in 2020 and 2021.
Inflation in Oman and the GCC has been significantly lower than most of advanced and emerging market countries.
‘The GCC countries, despite importing up to 90 per cent of their food supplies, have weathered the Russia-Ukraine conflict-related food supply chain disruption mainly by having varied food import sources. Government price caps on essential food items and fuel also insulated households from steep food and fuel price rises,’ Kamco Investment said in a research note.
Inflation rate in Oman increased by 2.9 per cent year-on-year during June 2022. Comparatively Oman’s inflation rate stood at 4.4 per cent at the beginning of this year.
‘In contrast with the global inflationary trend, Oman’s inflation has been decreasing thanks to the stability in prices of fuel, rent, water, and electricity. Oman introduced and implemented a set of measures such as social protection measures, economic stimulus, and support for small and medium sized businesses which greatly eased upward inflationary pressures from soaring,’ Kamco Investment said.
The sultanate’s marginal inflation growth in June (against May) was mainly attributed to the rise in food price index (up 6.1 per cent), education index (up 5.1 per cent), and transport index (up 4.2 per cent).
‘GCC households have been insulated from sharp price increases by food and fuel price caps, more limited stimulus in the last two years that forestalled the build-up of domestic price pressures, and the strength of US dollar-pegged currencies which have dampened import costs,’ Oxford Economics said in a recent report.
Oxford Economics raised its inflation forecast for the GCC to average 3.2 per cent this year, up from its projection of 2.8 per cent six months ago. ‘However, the GCC’s rate of inflation will remain below that of most advanced and emerging markets, as we expect inflation to average 7.5 per cent globally this year,’ the economic advisory firm added.
With inflation in the US and European countries reaching many decades’ high, some GCC countries have witnessed a moderate rise in inflation in recent months. In the US, consumer price index increased 9.1 per cent year-on-year in June, its highest increase in 40 years. Similarly, the inflation rate in the European Union jumped 8.6 per cent year-on-year in June.
‘Government policies have insulated GCC countries from rising inflation. The moderate inflation rate rise in GCC countries is mainly attributed to improved economic activity in the region as higher oil and gas prices strengthened government coffers and investments,’ Kamco Investment said.
Inflation outlook remains moderate
Despite the growing global inflationary pressures, inflation outlook in Oman remains moderate and does not pose any imminent concern for financial stability in the sultanate, the Central Bank of Oman (CBO) recently said in its Financial Stability Report 2022.
As per the CBO, inflation expectations for over half of the consumer basket in Oman remain low. Moreover, higher oil revenues have provided more fiscal space to the government for targeted intervention [such as subsidies] to offset any inflationary pressures to complement monetary actions taken by CBO.
In its latest Regional Economic Outlook, the International Monetary Fund said GCC inflation rate will witness a growth of 3.3 per cent in 2022 and 2.3 per cent for 2023. The IMF expects Oman’s inflation to average 3.7 per cent this year, which is well below the global average.
The sultanate’s central bank noted that the gains from higher oil prices have dwarfed the inflationary pressures. It said due to ample supply, housing costs in Oman are not expected to rise sharply in the near term. Moreover, the prices of utilities (water, gas, and electricity) are administered and the price of fuel for the year 2022 has been capped at the October 2021 level.