Muscat: Oman’s inflation is expected to increase for essential goods and services this year, which will cause a decrease in the purchasing power of consumers, according to a study conducted by BMI Research – a London-based financial firm.
BMI Research projected that Consumer Price Index (CPI)-based inflation could go up to 1.5 per cent in 2017.
According to official statistics, Consumer Price Index-based inflation in Oman in November grew by 1.9 per cent, over the same period in 2015.
“I feel inflation will hit low-income people,” said Ramanuj Venkatesh, Assistant Manager - Accounts, at Larsen and Toubro.
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“Schools, colleges and other public institutions will also be affected, because they need to procure commodities to serve their communities,” he said.
“Hospitals and clinics, which need to buy goods and services that are already quite expensive, will need to absorb this cost, and this will definitely get passed on to the consumer. This may not affect the economy to a great extent, but consumers will surely be affected by this.”
Dr. Anchan CK, managing director of World Wide Business House in Oman, also projected an increase in the cost of living in 2017.
“The cost of living will go up, and in turn will affect all other businesses,” he noted. “Because Oman’s economy is heavily dependent on imported products, this is impacting the prices paid by consumers. There will be a challenge because manufacturers and retailers cannot assume they can pass on price increases to consumers."
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“The impact of inflation will soon hit the Omani consumer,” he added. “This squeeze on profit margins is not good for investment and business for industries that produce goods for consumers, even though this may be balanced by some extent by a boost to exporters,” he added.
“Spending power of consumers will affect the overall economy, as consumption is normally the largest GDP component,” said Dr. Anchan CK.
Taimoor Khan, chief investment officer for Zara Investment Holding, said that lower inflation often pointed to lower salary hikes. “Wages are generally a lagging indicator of price increases and inflation, in general. So, while your rent might not be going up, most likely neither will your salary.
“For a country like Oman, the recovery in oil prices during 2017 will have a positive impact, as those higher revenues pour in over the course of the year,”
“This will strengthen the government’s hand to launch new public initiatives, engage in further infrastructure development and broaden the country’s economic capabilities. These actions will have trickle down effects in lots of businesses, thereby reducing the impact inflation will have on people.”
Khan added that adjusting inflation was part of the responsibilities of every government.
“Inflation is the ultimate balancing act that every central bank and government has to perform. If there is too much inflation, then the value of currencies drop and people’s spending powers are reduced,” he added.