Even as inflation has been rising faster than expected throughout the world since the beginning of 2022, households in the Sultanate of Oman remained shielded from the risk of changing prices thanks to positive fiscal and monetary measures.
According to Pew Research Center analysis, in 37 countries out of 44 countries examined, the average annual inflation rate in the first quarter of this year was at least twice what it was in the first quarter of 2020, as Covid-19 pandemic was beginning its deadly spread.
In 16 countries, first-quarter inflation was more than four times the level of two years prior. Among the countries studied by the agency, Turkey had by far the highest inflation rate 54.8 per cent in the first quarter of 2022.
Annual US inflation in the first quarter of this year averaged below 8.0 per cent with the first-quarter rate almost four times its level in 2020’s first quarter.
Countries in the GCC have generally lower levels of inflation compared to the rest of the world. According to the International Monetary Fund, inflation specifically in the UAE is expected at 3.7 per cent this year, before it softens to 2.8 per cent the following year.
Regardless of the absolute level of inflation in each country, most showed variations on the same basic pattern -- relatively low levels before the Covid-19 pandemic struck in the first quarter of 2020 -- flat or falling rates for the rest of that year and into 2021.
This occurred as many governments sharply curtailed most economic activities, and several central banks raised rates as the world struggled to get back to something approaching normal. The heightened uncertainty and tightening of monetary policy cast negative overtures on the recovery.
To tackle the mounting inflationary trends, the US Fed has raised its benchmark interest rate thrice during the first half of 2022.
Following the lead of the Fed, the Central Bank of Oman also raised its repo rate to 2.25 per cent by mid-June 2022 in three successive rate revisions albeit inflation expectations in Oman remained moderate.
According to Oman’s apex bank, inflation expectations for over half of the consumer basket in Oman remain low. Moreover, higher oil revenues have provided more fiscal space to the government for providing subsidies, which is expected to offset inflationary pressures.
The inflation rate in Oman in June rose to 2.85 per cent on an annual basis driven mainly by the increase in food and beverage prices. Every month, the rate increased by 0.45 per cent in June compared to May this year to 2.4 per cent during the corresponding month in 2021.
Unlike in many other economies where property prices and rents grew at record rates during the Covid-19 pandemic, the prices in Oman dropped due to a decline in the number of expats who left the country. But the prices started stabilising towards the end of 2021.
Due to ample supply, housing costs are not expected to see a sharp increase in the near term.
Moreover, the prices of utilities like water, gas, electricity are administered, the price of fuel for the year 2022 has been capped at the October 2021 level, and the communication sub-index has been almost flat though slightly declining for almost a decade.
“Although landed cost of some food items in particular grains and edible oil will contribute to higher prices, the inflation will remain benign for over 50 per cent of the consumer basket”, the Central Bank points out in its Financial Stability Report 2022.
As an oil exporter, rising commodity prices are a net positive for Oman as the higher proceeds from hydrocarbons have provided ample fiscal space to the government to counterbalance any inflationary pressures with targeted interventions to complement the impact of monetary policy actions.
A recent Credit Conditions Survey reveals that in 2022 financial institutions foresee an increase in the demand for credit from households and businesses, and they anticipate easing of credit availability to both segments.