Increasing Prices

Qatar

Economic News

22 Jul 2010
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Despite a long history of very low inflation, the past few years have seen the cost of goods and services soar in Qatar. Inflation has left the private sector with little choice but to increase the wages of its employees or face a tightening labour market.



Businesses are finding it increasingly difficult to entice expatriate workers to take up positions in Qatar - a serious concern when 96% of the private sector is made up of non-nationals.



Recently, the local press has been carrying reports of expats sending their families back home, as the costs of renting accommodation and sending their children to school in Qatar have become too expensive. Reports are now suggesting businesses are having difficulty even attracting workers to Qatar.



The majority of Qatar's expatriate workforce is drawn from the Asian subcontinent but qualified Indian workers are finding their savings in Doha slowly eroded, while India's own economic boom provides an increasing number of attractive opportunities at home.



For its part, private business is trying hard to attract workers from overseas. Housing allowances have been increased and a recent survey by recruitment website Guftalent.com showed that Qatar has seen the largest private sector wage increase of all the Gulf States. Private sector wages in Qatar increased by 11.1% in the twelve months leading up to August 2006.



This is the second year in a row that Qatar has topped the list - in 2005 Qatar saw an increase in private sector base wage rates of 7.9%. For both years, construction and banking recorded the highest wage increases.



The rise in wages comes in response to the increasing cost of living in Qatar, which in turn many employees blame on the rising cost of accommodation. Rents shot up throughout 2005 until at the beginning of 2006 legislation was introduced restricting rent increases to 10% per year. The ruling has not, however, proved easy to enforce and many tenants have been left feeling the law continues to make too much provision for landlords.



Besides rising rents, data released by Qatar's central bank in August showed rises in the consumer price index (CPI) across the board. The CPI for clothing and footwear rose from 104.3 in the last quarter of 2005 to 109.3 in the first quarter of this year



Figures from the planning council put inflation in 2005 at 8.8%, compared to 6.8% in 2004. Overall the housing sector saw the largest increase in 2005 with inflation at 26.3%, while the cost of medical care increased by 4.5% and food, beverages and tobacco increased by 3.1%.



Other independent estimates of the rate of inflation in 2005 put the overall figure only slightly lower at 7.8%



Liquidity rose 43% in 2005 and by May this year had continued to grow at an average of 40%. This has resulted in an increase in lending to the private sector as banks seek to pass this on.



In August, the central bank issued a report stating it is "closely monitoring the liquidity situation". The report also suggested that rents were in fact stabilising, seeing only marginal increases in the first quarter of 2006. The central bank's response to greater liquidity has been to push up the cost of borrowing and it is hoped this will bring rising tide of inflation under some control.



At the same time, though, the Qatari riyal is pegged to the US dollar meaning inflationary and deflationary pressures are imported via the currency link straight from the US.



Qatar's government officially pegged the riyal to the dollar in 2001 and the central bank has indicated it has no intention to re-examine this in the near future. The peg is expected to remain in place at least until a unified Gulf Cooperation Council (GCC) currency is announced in 2010.



For many observers, inflation is a natural result of the country's booming economy and with growth at record levels, the current rate of inflation should not be a cause for alarm. For businesses in the private sector as well as individuals living in Qatar, the country continues to become an expensive place to do business. The other side of the coin is that there are billions of dollars of business to do with little sign of the growth rate abating.
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