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King Canute and the search for a miracle

April 23, 2008 10:00 by

inflation, uae, dollar pegThe UAE Minister of the Economy says it would take a miracle to meet the Government’s official target of five per cent for inflation this year. Inflation hit a 19-year peak of 9.3 per cent in 2006 and probably accelerated to 10.9 per cent last year, says the National Bank of Abu Dhabi. Anyone who has bought food or rented a flat in the past year should be able to figure out things have got more expensive.

Like King Canute ordering back the tide, the government is coming to the realization that ordering shops not to raise prices - and giving government workers double-digit pay increases - does not make inflation go away. Saudi Arabia this week admitted inflation will run to double digits in 2008.

Through all of this, Gulf governments, with the exception of Kuwait, have ruled out dropping the dollar peg (matching US monetary policy) or revaluing their currencies. It might not be the cure, but it is hard to see how it would make things worse. Kuwait is not inflation-free.

In the meantime, the search is on for a miracle. Or send useful suggestions to the Minister of Economy.

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