MUSCAT: Average inflation rate in Oman is expected at 4.1 per cent this year, up from 1.1 per cent in 2016. However, it is much lower than the 8 per cent inflation estimate for the entire Middle East and North Africa (MENA) region for the current year.
Citing a report from International Monetary Fund (IMF), the Central Bank of Oman in its financial stability report said the inflation rate calculated in terms of consumer price index (CPI) will stabilise at around 3 per cent in 2020.
The year-on-year inflation rate for the first three months of 2017 was 2.8 per cent, which was mainly driven by a sharp increase in transportation costs at 10.8 per cent.
“The expected increase in the inﬂation rate is consistent with the removal of subsidies, higher expected interest rates, and the debt-ﬁnanced budget deﬁcit. These inﬂation rates are still in single digits and not expected to be destabilise the macro-economy or to create any ﬁnancial instability,” the CBO report noted. Government expenditures in Oman have signiﬁcant effect on inﬂation.
“Fiscal measures (for cutting expenditure) like the cut in fuel subsidy are aiding the inflationary pressure,” said Suresh Kumar, head of Research at Al Maha Financial Services. Further, tight liquidity in the financial system drives interest rates, which in turn increases inflation.
The report also said the inflation rate in the Middle East and North Africa (Mena) region is expected to average at 8 per cent in 2017.
The global inflation averaged 2.8 per cent in 2016, and is projected to increase to 3.5 per cent in 2017 due to a number of factors, including an increase in aggregate demand and an increase in commodity prices since the third quarter of 2016. The general outlook for the next three years between 2018 and 2020 remains stable; however, with an inflation rate around 3.3 per cent across the globe.