Oman has the second lowest inflation growth forecast among the Gulf Cooperation Council (GCC) countries at 1.1 percent in 2023 and 1.7 percent in 2024, in terms of regional picture, according to the IMF.
“Oman recorded the lowest inflation rate in the GCC in 2022 at 2.8 percent according to data published by the International Monetary Fund (IMF)”. However, the consumer prices index in the Sultanate of Oman witnessed a year-on-year (y-o-y) increase of 1.3 percent in September 2023, according to a new report. “The Sultanate’s inflation rate has been on a downward trajectory during 2023 reaching its lowest monthly growth point for the year during July-2023 when it registered a growth of only 0.45 percent,” the Kuwait-based Investment Strategy & Research firm Kamco Invest said in its ‘GCC Inflation Update, November 2023’ report
The Sultanate’s inflation rise was mainly driven by a 3.4 percent y-o-y growth of Food and Non-Alcoholic Beverage Index, the second biggest weighted index. Furthermore, the Sultanate’s Restaurant index also recorded a 2.3 percent y-o-y increase during September 2023 while the Furnishing and Household Equipment sub-index, another significantly weighted group, followed with 2.0 percent y-o-y growth during the period, the Kamco Invest report said.
These gains were partially offset by the 1.4 percent y-o-y decline in inflation for the Transport group and the 0.2 percent y-o-y dip in the Communications group.
The Kamco Invest report further said that global central banks paused rate hikes in recent months as inflation, despite remaining persistently high above the target rate for a while, is expected to trend downwards. Both the US Fed and the ECB paused rate hikes in the latest meetings sending a strong signal that central banks are done hiking rates.
This was reflected in the recent recovery in global stock markets while bond yields eased at the higher end. Yields on 10-year US treasury bonds dropped by more than 50bps to 4.5 percent after reaching a 16-year high last month. However, the question of when the monetary easing will start kept investors guessing and delaying their investment decisions as past experience shows that it’s too soon to talk about a rate cut before inflation is in a comfortable target range.
Inflation is proving to be persistent in some regions and defied a global downward trend mainly in economies that have high food prices. Inflation in the Middle East and North Africa (Mena) region is expected to remain in double digits at 17.5 percent in 2023 and 15 percent in 2024, as per the IMF. This comes as higher rates in advanced economies led to a capital flight from emerging economies, resulting in currency depreciation and making imports costlier, including crude oil and other commodities. Higher borrowing costs also increase the general price of products, especially seen in non-GCC Mena countries.
On the other hand, inflation in the Gulf Cooperation Council (GCC) region has remained much lower than its counterparts in the broader Mena region as well as global peers. The International Monetary Fund (IMF) has kept its forecast for inflation in the GCC region unchanged in 2023 at 2.6 percent 2023 and pencilled a forecast of 2.3 percent for 2024. Furthermore, core inflation for the GCC is expected to average 1.9 percent during 2023 and 2.2 percent in 2024 reflecting effective government and central bank policies to reign in the impact of higher international prices. There are fears that the recent war on the Gaza conflict may drive up energy prices, especially in the European region, but this is expected to have a limited impact on the GCC countries.
