The falling dollar, inflation factor for the Gulf oil monarchies

The falling dollar will fuel inflation in the oil rich Persian Gulf monarchies, though not forcibly take you to separate your currency greenback, analysts said.
With the continuing decline of the dollar, which is close to 1.50 per euro from a few days ago, exports from Europe and Asia to the six countries of the Gulf Cooperation Council (GCC) will become more expensive.
"The most direct consequence of the weak dollar will be a higher bill for imported products," said Paul Gamble, head of research Jadwa Saudi Investment Bank. "This will not be immediately through increased inflation because the ties between local and global economies are flexible enough to allow keeping a lid on consumer price index," said Gamble told AFP.
"However, a persistent fall in the dollar may eventually lead to more inflation, a phenomenon that is exacerbated by rising raw materials that serve as shelter value to a weakening dollar," he added.

Since March, the dollar lost 18% of its value against the euro, and analysts expect a move towards lower long term. In parallel, a barrel of oil rose 75% from its fall to $ 34 in early 2009.
Kuwait is the only GCC country which indexes your currency on the basis of a basket of currencies dominated by the dollar, which explains a setback not as strong of its currency, the dinar.
In contrast, Saudi Arabia, Bahrain, UAE, Qatar and Oman have their currencies fully indexed to the dollar, which the devaluation is even greater.
The most visible impact of the dollar's decline is the rising prices of foodstuffs in the Gulf, said the analyst Amrith Mukkamala, the Kuwait Financial Center.
"A weak dollar will increase import prices, such as food products," said Mukkamala told AFP.
"Inflation is already rising in the GCC and the trend will be accentuated in December," said Mukammal, estimating that anyway will not be as strong as in 2008, when he reached double-digits in five of the six countries of Persian Gulf, with Bahrain as the only exception.

The average inflation in the GCC is set at 2.9% at end-2009, against 10.8% in 2008, but should climb strongly in 2010, supported by rising oil prices and the return of economic growth.

The high inflation of the last two years he returned to bring to the fore the debate about the indexing of local currency on the dollar. Until now, the GCC countries ruled out the system and four of them are preparing to launch a single currency will also be indexed from the dollar.