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The variables affecting inflation in selected countries
Inflation is a critical measure of a countries economy because it reflects the living standards enjoyed by the citizens. Economies typically experience booms and bursts that influence the demand and supply of goods and services, and in turn, their prices. In this regard, inflation is considered the changes in the prices of goods and services in a country, often determined annually. It can be positive if the prices increase, with dramatically high increases being termed as hyperinflation, and negative if the prices reduce, leading to deflation. The United Arab Emirates has a thriving economy that is highly dependent on oil and gas (Nusair 998). Its citizens enjoy a relatively high standard of living comparable to that of industrialized nations in the west. However, the country has experienced economic shocks from the fluctuation of oil prices, the slump in the real estate market, and public health crises, like the ongoing Covid-19 pandemic, which has caused inflation (Arabian Business para 2). Nonetheless, United Arab Emirates (UAE) is diversifying its economy to reduce its reliance on it, thus protecting it from oil-related economic shocks (Nusair 998). It is also emiratizing its workforce to increase the participation of the Emiratis in an expatriate-dominated labor market. Consequently, the country experienced a deflation of about 3% in 2021, up from 2% deflation the previous year (O’Neill para 1). The ensuing discussion dwells on the variables and influence inflation in the United Arab Emirates as a member country of the gulf cooperation council (GCC).
Several variables contribute to the inflation of a country, which is reflected in the prices of goods and services. These variables influence the purchasing power of a country’s currency and how that power has changed over time, in annual intervals. Central banks are mandated to determine these variables and institute measures that would regulate inflation to stabilize and lower its change rate. In this case, the Central Bank of the UAE (CBUAE) is mandated to monitor inflation in the country and institute monetary policies that would regulate and prevent the inflation rate from hitting double digits to stabilize the economy. For the United Arab Emirates, the gross national product (GDP) and money supply influence the inflation rates and trends significantly (Alsheikh and Rana 1309). The reason being that the UAE is highly dependent on oil-related exports to generate revenues to support its social programs, public investments, and sovereign savings (Nusair 999). Similarly, the UAE imports most of its products, and especially food, considering that it is located in the Arabian Desert, which is not arable (Javed et al. 213). Besides, its currency, the Dirham, is pegged against the United States dollar to help stabilize the monetary exchange rate. These economic features are common across the GCC member countries and, therefore, not unique to the UAE. From this precept, identifying the variables that affect inflation in the United Arab Emirates becomes feasible. These variables can be internal or external depending on whether the CBUAE has any significant influence on them and their effects on inflation using monetary policy interventions.
Works Cited
Abbas, Waheed. “What inflation? Cost of living set to decrease in UAE in 2019.” Khaleej Times. 11 March 2019. https://www.khaleejtimes.com/business/what-inflation-cost-of-living-set-to-decrease-in-uae-in-2019. Accessed 19 January 2022.
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Alsheikh, Duha, and Faisal Rana. “Determinants of inflation in GCC countries.” PalArch’s Journal of Archaeology of Egypt/Egyptology, vol. 18, no. 13, 2021, pp. 1309-1321.
Arabian Business. “2022 forecast: Why UAE companies should prepare for rising inflation.” 1 January 2022. https://www.arabianbusiness.com/industries/banking-finance/2022-forecast-why-uae-companies-should-prepare-for-rising-inflation. Accessed 19 January 2022.
Javed, Iqbal, Iftikhar Nabi, Mudassar Yasin, and Amar Razzaq. “Macro determinants of exports from Pakistan to United Arab Emirates (UAE): an empirical analysis.” Journal of Agricultural Research, vol. 56, no. 3, 2018, pp. 209-214.
Nusair, Salah A. “Oil price and inflation dynamics in the Gulf Cooperation Council countries.” Energy, vol. 181, 2019, pp. 997-1011.
O’Neill, Aaron. “Inflation rate in the United Arab Emirates 2026.” Statista. 23 November 2021. https://www.statista.com/statistics/297779/uae-inflation-rate/. Accessed 19 January 2022.