Inflation in the GCC not going away soon

Al-Monitor Pro Members

Dr. Robert Mogielnicki  

Senior Resident Scholar, Arab Gulf States Institute in Washington, DC

Oct. 25, 2022

Inflation rates in Gulf Cooperation Council (GCC) countries remain below regional and global levels. Inflation in the GCC is unlikely to dissipate over the short term; however, rising prices are very unlikely to spiral out of control. Much of the inflation story in the GCC concerns food and beverage prices. Fuel prices in the UAE and real estate prices across the region pose some additional challenges for policymakers seeking to mitigate the negative impacts of inflation over the short and medium terms.

• The IMF predicts that global inflation will rise from 4.7% to 8.8% in 2022 before falling to 6.5% in 2023.
• Headline inflation in the Middle East and North Africa region is projected at 14.2% for 2022 and expected to remain elevated in 2023, according to the IMF. Inflation rates in GCC countries remain much lower.
• Saudi Arabia’s annual inflation rate accelerated to a 15-month high of 3.1% in September, up from 3% in August.
• Food and beverage prices were the main drivers of inflation in Saudi Arabia in September (meat prices increased +6.5%), according to the General Authority for Statistics.
• The UAE’s central bank indicated that inflation reached 3.4% in the first quarter of 2022 and has projected a 5.6% inflation rate for the year.
• Unlike other GCC countries, fuel prices in the UAE are adjusted based on market costs, heightening inflationary pressure during periods of high energy prices.
• Inflation in Dubai reached 7.1% in July, which was the emirate’s fastest increase in prices since 2016, according to Bloomberg.
• Emirates NBD, Dubai’s biggest bank, gave employees pay raises of up to 8% to help address rising costs.
• Oman reported an inflation rate of 2.4% in September of this year, according to the country’s National Center for Statistics and Information.
• The relatively small populations of GCC countries combined with “effectively an inexhaustible supply of labor at the prevailing wage” from countries like India and Pakistan help GCC businesses resist price rises.

Inflation rates in GCC countries have increased at a steady but modest pace over the past year. For example, inflation in Saudi Arabia increased from 0.6% in September 2021 to 3.1% in September 2022. Yet prices have, for the most part, risen gradually and stayed within manageable levels. This dynamic is unlikely to change over the short term. Rising prices will negatively impact the economic welfare of many lower-income migrant laborers — many of whom already operate on a shoestring budget. GCC governments, which are enjoying budget surpluses stemming from high oil and gas prices, remain in a strong position to insulate their national populations from future inflationary pressures.