Inflation trends QATAR - Essay Example

?Running Head: Inflation Trends in Qatar Inflation Trends in Qatar [Institute’s Inflation Trends in Qatar Introduction Qatar isthe world’s top liquefied natural gas exporter (Reuters, 2011). The economy of Qatar has a policy of maintaining prices and currency stability. Since the early eighties, “by stimulating economic policies the monetary policy of Qatar was directed” (Abdulrazaq, Shotar, & Al-Quran, pp. 118-126, 2003). In specific, the average inflation rate of this period was relatively low. For the period of 90s, the rate was at 2.25% that was due the defensive actions of the central bank. However, the Qatar economy is somewhat pegged, because it maintains its currency at a fixed rate. The major objective of the central bank was to maintain the rate as (Q.R 3.64= $1) (Abdulrazaq, Shotar, & Al-Quran, pp. 118-126, 2003). However, the trends show that inflation in Qatar was falling in the eighties. The reason behind this was that there has always been government intervention due to which it was controlling the inflation prices by having an influence on the money supply. Qatar was experiencing a downtrend in inflation until 2004 when the long termed deflationary trend ended (Inflation Data, 2010). (Trading Economics, 2010) Inflation in the Gulf Cooperation Council continued to rise with each of the members experiencing a double-digit rise in prices. However, Qatar is one of the countries that have been under most impact due to the increase. The led the government to enact unprecedented protectionist policies (Hassan & Nakibullah, pp. 1-5, 2008). Qatar experienced 15% inflation in 2008. It is an assumption to have the fastest growing economy in the Gulf Cooperation Council and is an assumption to experience the least changes in inflation this year as well as the next. In December 2010, “Qatar returned to inflation due to which the costs of living rose to 0.4 percent” (Merzaban, 2008). This was so because there was a rise in the prices of clothes, transport, and entertainment. Similarly, on the other hand, rental and energy costs fell. However, deflation is easing in Qatar in recent years because “the OPEC member’s economy recovered from a slowdown in 2009 when prices fell from 4.9%” (Merzaban, 2008). However, prices in November remained flat. The three major factors, which contribute in the soaring of the inflation rates in Qatar specifically, are the high levels of government spending, growing demands of housing, because of which the prices of the houses and rents are pushed up, and the pegging of riyals with dollars, due to which the interest rates are falling (Whiteman, 2008). If practically take each factor into account, we come to a conclusion which says, that when there is a general rise in government spending, so this pushes up the aggregate demand, which is one of the causes of inflation taking place. Taking the other factor into account- there is an increase in the demand for housing means that more people are there, which means that increased population, which again increases the aggregate demand, hence pushing the inflationary prices. Furthermore, when one converse about the riyals being pegged against the dollars, this means that the government is holding back its reserves in order to control the prices, which eventually extinguishes and hence this leads to a boost in prices causing inflation in the economy (Whiteman, 2008). Another reason for growing rates of inflation in Qatar is that Qatar is the world’s largest exporter and trans-shipper of Liquefied Natural Gas. In addition, it will remain the fastest growing economy despite the lower oil prices. Due to being the largest exporter of Liquefied Natural Gas, the economy can experience increased rates of currency, which will lead a general increase in prices and hence inflation (Reuters, 2011). The increased rates of inflation that have taken place are mostly due to the higher global food prices. Food is a necessity and due to the increased populations, demand for it has increased and therefore, causing the rises in inflation (Jha, 2010). Speculation also leads to inflation. The speculators have speculated a rise in prices in the near future. There is a 20% expected growth in GDP, which means that the prices are expected to rise in the near future because of the increased aggregate demand. The Gulf Arab expects to invest “around $100 billion on infrastructure projects including road and rail networks, because it has been chosen to host the 2022 Football World Cup” (Waki, 2011). Factors affected due to rising inflation Due to the recent trends of inflation in Qatar, there a lot of factors those are affected. Inflation in Qatar has changed its trend since 2004 and it took a rising trend (Oxford Business Group, 2008). It happened when there was an end to democracy. Before that, enough government intervention resulted in the pegging of the exchange rate and hence, inflation was in control. However, since democracy has taken place, the trend has taken a completely different turn and now it is constantly rising. Various factors are being affected due to rising inflation. Unemployment being one of the factors has an inverse relationship with inflation. Rising inflations leads to falling unemployment (Oxford Business Group, 2008). Because during those times more people find ways to work as they need to overcome the rising prices. However, it is seen that the trends of unemployment in Qatar have fallen considerably over the years as the inflation is rising. One more reason behind this is the fact that Qatar is one of the richest countries and cannot experience unemployment. Due to the sky rocketing rentals in Qatar, people are left with no choice than to live singly as they cannot own a house (Oxford Business Group, 2008). Not only the expatriates have been affected due to these rents, but the nationals are in a state of awe too. In addition, the companies are adding a problem to this by becoming one of the causes of high rentals. Companies take houses on packages, which gives the property owners an additional reason to raise prices at the cost of individual singles. Furthermore, higher costs if living are one of the causes of inflation that has risen up to 8.2% in the first quarter of 2006, previously being 2%. In 2004, the inflation rate was at 8.48% that rose to 12.68% in 2005 (Oxford Business Group, 2008). Inflation loses the purchasing power of individuals. Now because of inflation, the foreigners have lost hope, and they really do not want to invest due to the uncertainties. In 2006, inflation rose up to 11.86%; this led the household index to stand at 145.5 points against the 126.6 points previously (Inflation Data, 2010). This led the index of fuel, energy, and rent to rise by about 35%. However, the index of entertainment, culture, and recreation rose as well. References Abdulrazaq, B., Shotar, M. M., & Al-Quran, A. 2003. “Money Supply in Qatar: An Empirical Investigation.” Journal of Economics & Administrative Sciences. Volume 19, Issue 2, pp. 118-126. Hassan, M., & Nakibullah, A. 2008. Gulf Monetary Union and Regional Integration. The Economic Research Forum. Inflation Data. 2010. Annual Inflation. Retrieved on March 05, 2011: www.inflationdata.com/inflation/inflation/AnnualInflation.asp Jha, Amitabh. 2010. “Qatar to continue to top GCC growth.” Qatar Tribune. Retrieved on March 05, 2011: http://www.qatar-tribune.com/data/20100922/content.asp?section=exclusive1_1 Merzaban, D. 2008. “Qatar to reign in home loans.” Qatar Tribune. Retrieved on March 05, 2011: http://www.arabianbusiness.com/qatar-rein-in-home-loans-50510.html Oxford Business Group. 2008. The Report: Qatar 2008. Oxford Business Group. Reuters. 2011. “Qatar back to inflation in Dec, living costs up 0.4% .” ArabianBusiness. Retrieved on March 05, 2011: www.arabianbusiness.com/qatar-back-inflation-in-dec-living-costs-up-0-4--375678.html Trading Economics. 2010. Qatar Inflation Average. Retrieved on March 05, 2011: www.tradingeconomics.com/qatar/inflation-average-imf-data.html Waki, Natsuko. 2011. “Gulf frontier markets robust despite Egypt: Qatar.” Reuters. Retrieved on March 05, 2011: http://www.reuters.com/article/2011/01/28/us-davos-gulf-markets-idUSTRE70R6NQ20110128 Whiteman, Hilary. 2008. “Qatar's inflation headache.” CNN. Retrieved on March 05, 2011: http://edition.cnn.com/2008/BUSINESS/01/31/qatar.economy/ Read More