Gulf 2010 inflation may rise on higher food prices

Rising global food prices are likely to raise the Gulf region's inflation levels by 2010 as most food products are imported, experts said on Wednesday.

"We expect to see food inflation will increasingly become an issue for countries in the Gulf region as global food prices start rising again," said Monica Malik, senior economist at EFG-Hermes in Dubai, declining to give specific estimates on the extent of the rise.

"We expect that inflation will pick up again in 2010 partly due to a pickup in food prices along with other imported inflation," she added.

Poor crop output this year has caused the price of basic food items such as rice and sugar to rise globally. But the impact of these prices have so far been less apparent in the region as some governments had signed fixed deals with traders.

"This is changing now, both sugar and rice traders dealing in UAE are in talks with the ministry of economy to push prices up to reflect the global rise," said Abraham George, manager at Baniyas Cooperative Society supermarket in Abu Dhabi.

Food prices have been rising, especially in the last two months, even as oil slid. Rolling 30-day returns on the S&P Goldman Sachs Agriculture index at 6.1 per cent exceed the 4.3 per cent decline on the S&P GSCI.

"We expect to see higher prices of both sugar and rice over the coming month or so," George told Reuters.

Inflationary pressures in the Gulf have subsided substantially this year since last year's record peaks as the global financial crisis and falling oil prices halted a six-year economic boom.

The surge in global food prices also propelled inflation.

Saudi Arabia, the largest Arab economy, saw inflation reach 9.9 per cent last year compared with 4.1 per cent in 2007, according to International Monetary Fund data.

Last month, the kingdom removed import subsidies on rice as exporters had been seen to be abusing the measure. But traders expect prices of the grain to rise amid a drought in India and increased import demand from the Philippines.

"We might see Saudi reverse this action soon as the price will increase next year," said Sharokh Khazaei, executive director of Dubai-based Mohsen Line General Trading, which trades around 200,000 tonnes of rice a year in the Middle East.

While countries with trade obstacles and high import tariffs like Iran, Iraq and Yemen are expected to suffer even more from high food inflation next year, said Khazaei.

"Iran has a rice tariff of 45 per cent and Iraq has problems with bureaucracy and Yemen with stability, so if supply tightens traders will not choose to export there which will cause prices to further rise," he said, adding that if Iran decides to phase out food subsidies over the coming three months inflation would deepen.