Khaleej Times, Monday, Jan 09, 2023 | Jamadi Al Thani 16, 1444
Vigilant policy measures to keep inflation under control
As inflation has become a major concern for major economic powers, the UAE and
Gulf Cooperation Council (GCC) countries will show resilience and continue
containing prices of essential goods through vigilant policy measures, experts
In its latest global economic outlook report, FocusEconomics said inflation is
forecast to be highest this year in eastern Europe, the Middle East, Sub-Sahara
Africa and Latin America.
The economic consultancy said global inflation is expected to have peaked in
third quarter of 2022 to 9.2 per cent and should decline throughout this year.
“Inflation in the Group of Seven (G7) countries will be lower than in most
regions in 2023 — albeit still elevated by historical standards,” according to
the report citing the war in Ukraine, western sanctions on Russia, Opec’s oil
production decisions and the Black Sea grain deal some of the key risks for
Higher rents to weigh
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said inflation
should remain in moderate range this year, especially in the UAE where there was
a marked strengthening in the prices this year.
“The softening in UAE Inflation will be on the back of energy prices, especially
from the high base in second quarter. However, we see higher rental prices
continuing to filter into UAE inflation,” Malik told Khaleej
Times on Sunday.
She said global inflation had also hit peaks and it should remain in moderate
range this year.
“Again, energy and food should drive the softening in global inflation,
alongside the weaker growth backdrop and tighter financial conditions. However,
even with the expected moderate, inflation is expected to remain well above the
comfort zone for many major central banks. As such, we see further tightening in
early 2023, including by the Fed. Tightness in labour markets is a key theme
globally,” Malik said.
In reply to a question about controlling inflation, she said the sharp increase
in global rates will contribute to weaker inflation in 2023, alongside the fact
that energy prices are significantly below their peak seen in 2022.
“A significant reason behind further global rate hikes is to stop inflation
expectations becoming entrenched,” she said.
UAE inflation in control
Saad Maniar, senior partner at Crowe UAE, said the UAE government has taken
various effective measures to contain inflation in the country despite a
challenging environment across the globe.
“The government is looking towards a reduced inflation rate this year i.e. just
over five per cent. Inflation has risen in line with global trends and is
expected to moderate gradually including from the impact of tightening financial
conditions,” Maniar told Khaleej
Times on Sunday.
About inflation in the region, he said GCC Inflation is expected to be around
2.6 per cent in 2023 and stabilise to around two per cent in the medium term.
“Price pressures had peaked in 2022 and inflation has started to come down in
the GCC economies,” he said.
To a question about how to contain inflation, he said high interest rates will
help reduce inflation, but it would also dent economic growth. In addition, the
government should take serious measures to control money supply and increase
economic efficiency and competitiveness.
More money chasing less goods
Atik Munshi, managing partner at FinExpertiza UAE, said nearly all countries
around the globe are facing some sort of inflationary pressure at this point in
“Some countries like Turkey, Russia, Iran and even US are facing high inflation;
the GCC countries are relatively better off in respect to inflation, however GCC
too has been impacted,” Munshi told Khaleej
Times on Sunday.
He said there are several drivers of inflation — the most common being more
money chasing less goods.
“Inflation can occur due to demand-pull, cost push, imported inflation and even
expectation of inflation. These factors can contribute singly or in cohesion to
the inflation,” he said.
“As we rely a lot on imports, we are also exposed to imported inflation, this
means that inflation in another country will result in price increase in our
country as the imported goods will become more expensive for the UAE consumers,”
Munshi said the monetary authority of the country along with its central/reserve
bank tries to rope in inflation through various measures.
“The UAE too has witnessed increased in prices of consumer price index (CPI)
bucket items. As real estate valuation has seen an increase, the rental
expectation has also increased. Rent is one of a major item in CPI bucket
(others include food, energy, transport, medical, etc.) Apart from the rental
increase part of the problem is also the cost increase which is breeding the
inflation,” he said.
He said central banks normally hike interest rates to curb inflation, with this
measure, money becomes dearer.
“The central bank may also resort to increase of reserve requirements of the
banks as a tool to control inflation. No method is full proof as the variables
are many. As the growth rate of the UAE is expected to be higher, entities may
face a lesser pinch,” he said.
Reasons for global inflation
> High demand in post-Covid era
> Supply chain disruption
> Over consumption
> Excess printing of money
> The war in Ukraine
> Rising food prices
> High energy rates