Dubai: New signs surfaced yesterday that inflation in the Gulf region will continue to rise from record levels, raising pressure on governments to rein in money supply growth and shield people from price pressures.

Inflation in Kuwait, the only Gulf oil producer without a dollar-pegged currency, remained around a record 10 per cent in March, while UAE money supply, an indicator of future inflation, surged at the fastest pace in five years.

The situation prompted Kuwait’s central bank to tell Reuters in an exclusive interview that it would renew “intensive efforts” using all monetary tools available to tackle red hot inflation.

Price rises are soaring across the world’s biggest oil-exporting region, touching a more than 30-year peak in top oil exporter Saudi Arabia, at least a 20-year high in the UAE and record and near-record levels in Oman and Qatar.

Social impact

“The new record figures come on top of an already elevated base in 2007, which is very worrying,” said Ala’a Al Yousuf, chief economist at Gulf Finance House.

Inflation in Oman soared to a record 12.4 per cent in April and UAE inflation touched 11.1 per cent last year, data showed this week.

“The social impact is going to be the biggest worry given the inflexibility of wage-setting in the region,” Yousuf said.

Almost two-thirds of employees in the Middle East think their salaries are not rising fast enough to keep up pace with inflation, a survey by Middle East employment portal Bayt.com showed this week.

In the UAE, where some federal government employees got 70 per cent wage hikes this year, 61 per cent of respondents in the survey were dissatisfied with their wages.

Like some of its neighbours, the UAE, a Gulf trade hub, relies on low-wage Asian labourers to support its oil-fuelled development. But foreign workers are increasingly disgruntled by salaries pegged to the ailing dollar and the rate of inflation.

But further salary increases only threaten to fuel money supply growth already ballooning across Gulf economies, which are surging on a near seven-fold rise in oil prices since 2002.

Central bankers, constrained by dollar pegs that have forced them to track seven US interest rate cuts since September, have ramped up calls on their governments to clamp down on fiscal spending to curb inflation.

“Fiscal policy can play a significant role in reducing inflationary pressures,” Kuwaiti Central Bank Governor Shaikh Salem Al Sabah told Reuters late on Wednesday.

“The Central Bank of Kuwait will continue its intensive efforts by employing all monetary policy tools … to deal with this challenge,” he said.

Kuwait broke ranks with Saudi Arabia and four other Gulf oil producers preparing for monetary union when it severed its link to the US dollar in May 2007 partly to fight imported inflation.

While it has allowed its dinar to rise almost 9 per cent since then, prices have continued to gain momentum because of rising housing costs.

Raising alarm: Curbing consumer lending

– Inflation in Kuwait, the only Gulf oil producer without a dollar-pegged currency, remained around a record 10 per cent in March while UAE money supply, an indicator of future inflation, surged at the fastest pace in five years.- Inflation in Oman soared to a record 12.4 per cent in April and UAE inflation touched 11.1 per cent last year, data showed this week.Money supply in the UAE, the second-largest Arab economy and world’s fifth-largest oil exporter, jumped almost 40 per cent in the year to March, central bank data showed yesterday, signalling inflation will continue to rise.- Kuwait’s central bank has also tightened curbs in consumer lending this year, while other Gulf central banks have raised bank reserve requirements and issued certificates of deposit to mop up liquidity.