Excess cash, peg to weak dollar fuel Gulf inflation

MANAMA, March 23, 2008 (AFP) – Abundant liquidity, triggered by sharply higher oil revenues, and the effect of currencies pegged to a weakening dollar are fueling inflation in the Gulf region, economists say.

And the situation is so serious that Gulf business leaders will meet in Bahrain on Monday to get advice from the International Monetary Fund (IMF) and the European Union on how to tackle the problem.

“The growth of money supply in Gulf countries has in some cases exceeded 20 percent,” leading Bahraini economist Ahmed al-Yusha told AFP this week. “This reflects in (higher) demand, and consequently affects prices.”

Gulf Cooperation Council members Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates have been enjoying a windfall of oil revenues on the back of record crude prices.

But the surge in revenues, which have injected GCC economies with a shot of energy reflected in impressive economic growth, has also left countries awash in cash.

The IMF expects overall GCC inflation to rise to six percent in 2008, with consumer prices in some member states rising at much higher rates.

The UAE and Qatar registered 9.3 percent and 11.8 percent, respectively, in 2006