Monday, April 14, 2008

(YET) Another Inflation Record Smashed...(but is that all that is to the story?)

Just when some are beginning to think it cant get much worse, in an article published by ITP's ArabianBusiness (click HERE to go to the article in full), inflation in Oman is racking up record upon record ever since the US Dollar started it's fateful slide for the worse...since then, the Omani Rial has lost close to 20% of it's value against some currencies (as I compared here), prices for food and other essential commodites have shot up through the roof (possibly more than just a roof this year)...

According to the article, "Inflation in Oman rose for a ninth month to 11.11% in February, the highest in at least 18 years"...

further adding that "
Food, beverage and tobacco costs, which account for almost a third of the consumer price index, surged 19.6% in February, the Ministry of National Economy said on its website on Sunday. Food costs had jumped 17% in January"

And the response was just the usual rhetoric the Omani public has been hearing all along..."There is no quick fix," Omani Economy Minister Ahmad bin Abdul-Nabi Mekki told newswire Reuters on Sunday."We took measures of reducing imports and we also requested wholesalers to reduce prices. Inflation will take its natural course in 2008."

Oman's CPI is now at 120 points, up from 108 from the same point in time a year back. This is reportedly the highest level since 1990.

The final piece of data given is: "Inflation in Oman, which hit 10.12% in January, had risen by an average of 1% in the last 10 years.

Rents rose 14.1% in February, down slightly from 14.3% in January,"

The article then goes into the defensive statements we've been hearing all along...there is an implicit message again that Oman does not intend to depeg or revalue the ailing Rial anytime soon...

What is surprising is the fact that the article mentions a Central Bank official as saying that Oman needs to slow down economic expansion...I dont see how that can be done without raising interest rates and reducing the money supply and liquidity in the market...

That said, I have a few thoughts of my own to add...I dont think Oman is alone in facing rapidly inflating food prices...Prices for food items have been rapidly increasing all around...I've noticed food items in Australia going up as well (Australia faces inflationary pressures as well and annual inflation is at around 3-4% despite measures by RBS including relentless interest rate rises, but some food items like Indian rice have shot up by as much as 20% over a period of months).

prices for food items (such as rice, wheat and perhaps all essential grains) have been rising sharply all over the world since the last year or so...prices are expected to stabilise a bit this year (since Australia is coming out from drought and expects to produce a healthy wheat crop this year) but to what extent they stabilise remains to be seen.

4 comments:

Per Your Request said...

"....Central Bank official as saying that Oman needs to slow down economic expansion...I dont see how that can be done without raising interest rates and reducing the money supply and liquidity in the market..."

That is one way, another way is for the government to reduce spending (fiscal policy).

Twister said...

Reduced government spending wont do much in this case...the real problem is the monetary policy going exactly opposite of what is actually required...

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