Another one added to the tally of a bajillion articles on inflation and what the government is doing to combat it was published in the Times of Oman recently...Click here to read it (it's a bit long).
Apparently the import of fish has been allowed, which will somehow drive down inflation. (It should drive down prices of fish and seafood, provided the imports are comparable in price to local produce. That aside, it should also calm the markets by balancing out supply/demand to an extent).
In my observation over the last year or so, I have noticed that inflation in Oman is not necessarily due to supply/demand...it is due to excessive liquidity in the market. This is due to the GCC states (except Kuwait) having to shadow US Monetary policy...while the US Federal reserve has cut interest rates form 5.25% to 3% from september onwards trying to ward of recession, the GCC countries are riding on a growth spurt fuelled by oil prices smashing new records everyday. This is practically a case of two economies moving in opposite directions but following the same policies.
This disparity in economic policies has driven up inflation in several ways...on one hand it creates a situation where a rapidly expanding economy meets excessive liquidity, excess money supply and low interest rates...when these combine together, it can drive up inflation very quickly...
Secondly, due to the OMR being pegged with the USD (at 1 USD = 0.385 OMR) and Oman shadowing the US economic policies, the value of the OMR has been dragged down to record lows against the major currencies...I'll cite a few examples:
Currency, Value in OMR 15-Dec 2006 , Value in OMR at 6-Mar-2008, % change from 2006 value
AUD OMR 0.300 OMR 0.360 (up 20%)
CAD OMR 0.332 OMR 0.390 (up 17.4%) [1]
EUR OMR 0.504 OMR 0.584 (up 15.8%)
GBP OMR 0.752 OMR 0.770 (up 2.4%)
JPY* 306.04 268.53 (up 14%) [2]
SGD OMR 0.250 OMR 0.277 (up 10.8%)
NZD OMR 0.266 OMR 0.307 (up 15.4%) [3]
CHF OMR 0.315 OMR 0.373 (up 18.41%)
[1] Canadian dollar attained parity with the USD in early November 2007, peaking at OMR 0.410
[2] The rate against JPY is expressed as OMR 1 to JPY/. Other currencies are 1 unit of foreign currency to OMR
[3] NZD value was reduced by some amount after intervention by RBNZ
(All rates sourced from HERE)
As it is clearly visible, the OMR has lost significantly to all major currencies except the UK Sterling. This means that all imports (be it shoes from European brands, your favourite meats from AUS/NZ, and the Cars from Toyota APAC which is based in Australia and manufactures most of the Camry units for the GCC region) have become significantly more expensive.
A an example,If you were paying OMR 3 per kilo for a A$10/kilo meat from Australia, you'll simply have to pay OMR 3.6 per kilo for the same product...
Not only has this depreciation of the OMR hurt the consumer in Oman, it has also reduced the attractiveness of the GCC region to expatriates, particularly from South Asia. On top of the spiralling cost of living, leaving less money with people to remit back home ( a large chunk of south asians do that), the depreciating currency creates further hindrance. As another example, 1 OMR was equal to almost 120 INR (Indian rupees) in dec 2006...and the current value stands at 1 OMR equaling almost 102 INR. This change of 17% in currency rates, coupled with the rapidly growing economies in South Asia (particularly India) where salaries are on an upward trend, will make it all the more difficult to attract talented people from the region. (The sporadic protests by construction workers over wages is another indication).
Looking at the data, isn't it getting obvious that if not detachment from the USD, a revaluation of the OMR makes sense? It will make imports cheaper and reduce the "imported inflation" in food items...As such, there is nothing stopping the Central bank from revaluing later should the USD appreciate again...but for the short-term, another US interest rate cut of 75 basis points (0.75%) from 3% to 2.25% is expected soon... will definitely pinch the USD even more...
