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Oman projected to have the lowest inflation rate in GCC for 2023

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The Sultanate of Oman is projected to have a 1.9% consumer price index (CPI) for 2023 — the lowest in the GCC region — according to the latest report by Kamco Invest. CPI is the most well-known indicator of inflation, which measures the percentage change in the price of a basket of goods and services consumed by households. Oman’s low inflation rate is attributed to the government’s proactive handling of the global inflation problem such as tackling the supply chain crisis related to foodstuffs.

As a result, during January 2023, the inflation rate in Oman increased to 1.89% y-o-y — the lowest monthly growth since August 2021. Oman’s inflation growth was mainly driven by a 4.78% y-o-y growth of the food and non-alcoholic beverage index, the biggest weighted index. Furthermore, Oman’s restaurant and hotel index also recorded a 3.91% y-o-y increase during January 2023. The Sultanate of Oman also witnessed one of the lowest inflation rates among the GCC countries in 2022 with price growth peaking at 4.4% in January 2022.

Meanwhile, inflation in the GCC region is expected to diminish in 2023 mainly because of higher interest rates and slowing global growth. According to PWC, inflation in the GCC is expected to average at 2.7% in 2023. The GCC region is expected to gain from its relative stability in its financial sector, thanks to higher oil prices and higher energy exports in 2022. This would allow GCC countries to invest in critical sectors in order to protect from future fluctuations in key food and component prices, the report added.

In the greater MENA region, inflation is expected to affect economic growth despite being low when compared to global economies. Efforts of some countries in the MENA region such as price controls and consumption subsidies helped to control prices. However, these measures are expected to result in additional costs to oil-importing countries in the region.

According to the World Bank, developing oil-importing countries in the region might need to find new revenues, increase deficit, debt, or even cut government spending in other areas of the economy to fund the costs of the inflation mitigation programs. In contrast, there is no such fiscal pressure for the GCC and other oil-exporting countries in the region as state revenue growth mainly from higher oil prices is expected to more than compensate for additional inflation mitigation costs incurred by governments.

The International Monetary Fund, on the other hand, said global inflation is expected to stabilise at 6.6% in 2023 and then drop to 4.3% in 2024 as compared to 8.8% in 2022. The forecast is based on an expected drop in energy prices, improving global supply chains and stabilisation in prices of essential commodities. However, factors such as faster economic growth in China and a rise in energy prices can push inflationary pressures upwards.

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