Rising Inflation


Economic News

22 Jul 2010
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Qatar's inflation rate has been a recent cause for concern. The government has made efforts to emphasise that this is just a transitional phase brought on by explosive growth. The Consumer Price Index (CPI) average for the four quarters in 2006 was up dramatically from 2005, resulting in an inflation rate of 11.83%, a significant jump from the previous year's rate of 8.8%.

This means Qatar's inflation rate touched an all-time high in 2006 with the CPI jumping to 133.23 from 119.23 in 2005. Soaring rent prices were seen as the main culprit.

Data released by the government's planning council recently revealed that rents leapt 25.3% in 2006. Higher rents also had a cascading effect on the rest of the economy, pushing up prices in other areas as well.

According to the local media, high rents, caused in part by a housing shortage, are now taking their toll on attracting labour to Doha. Qatar is steadily becoming unaffordable for employers to house imported labour and their families. This, coupled with shortages in raw materials, has lead to added inflationary pressures on the market.

Some experts say inflation is an unavoidable by-product of the kind of rapid growth Qatar has seen in recent years. According to the council's data, Qatar's economy grew by 24% in 2006.

Andrew Brown, the country chairman for Shell Qatar, told OBG, "It is partly the energy projects with their demand for resources and products, which create inflationary pressures." He explained there is going to be a levelling off of energy projects, as the parties involved concentrate on existing projects. "This calming down period will have a beneficial side for the economy, it gives time for the economy to cool in a healthy way," said Brown. He went on to say that although it was clear inflation had risen in Qatar, the government is tackling the issue and it will be successful in the long run.

Rising inflation seems to be prevalent within the Gulf Co-operation Council (GCC) region. Not surprisingly, surging economic growth has been accompanied by high inflation. Qatar is expected to have the second highest inflation rate in the Gulf after the United Arab Emirates. Finance Minister Yousef Hussein Kamal said GCC countries witnessed significant growth due to increases in energy prices and a buoyant private sector but they were not immune to challenges like rising inflation and poor stock market performance.

Imported inflation is an issue surrounding monetary policy in Qatar. With the riyal pegged to the US dollar, Qatar has experienced added inflationary problems. However, some analysts see this as the lesser of two evils. Steve Forbes, CEO of Forbes magazine, sees keeping the riyal pegged to the dollar as a sound economic plan as long as it guides monetary principle. "I think it certainly is a good discipline, because you don't have to guess - should we be easing or tightening - and run the dangers of really rampant inflation. The US has got some inflation of our own, which will be imported into Qatar, but it would be less than what you have here otherwise," Forbes told OBG.

Estimates from the minister of finance show rents could drop by as much as 20% in the first eight months of 2007 as supply shortages ease. If this proves to be the case, it will certainly have a positive effect on the level of inflation. He further stated the government is working to drive inflation down to a sustainable annual 3% in the near future.

Qatar is also expected to be the leader in terms of GDP growth for the GCC region in 2007. This comes primarily from the fact that gas production is planned to increase by over 40% with energy projects striving to bring new capacity online. These include the Pearl gas to liquids project by Qatar Petroleum (QP) and Shell and development of the Barzan section of the country's North Field by QP and ExxonMobil.

Qatar is planning to invest large amounts of money in infrastructure over the next five years, with half of the $130bn slated going to non-energy related projects, such as housing and construction, which should ease the economic strain on the country. The government also plans to continue its strategy of diversification by investing in education and healthcare. Combined with a government commitment to rein in inflation to 3%, the future looks promising for Qatar.

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