Oman’s Inflation Falls Despite Higher Food Prices

Despite the increase in prices of many food items, Oman’s annual inflation rate decreased in July, thanks to the stability in prices of fuel, rent, water, electricity and telecom services.

Inflation rate – as measured by the sultanate’s consumer price index (CPI) – decreased to 2.6% in July 2022 from 2.9% in June 2022. Comparatively Oman’s inflation rate stood at above 4% at the beginning of this year.

However, consumer price inflation for food and non-alcoholic beverages group, which has nearly 24% weight in Oman’s CPI, rose to 6.0% in July 2022 compared to the same month of the previous year.

Global food prices have been soaring fast since the beginning of Russia’s invasion of Ukraine. Since Oman needs to import most of the food materials from international markets, rising global prices directly affect the prices in local market.

Among food items, prices of cooking oils and fats rose more than 19% year-on-year in July, but bread and cereals prices grew at a lower rate of 3.9%.

While meat prices recorded an 8.5% increase, prices of fish and seafood products jumped 7.9% in July on year-on-year basis. Consumer prices for vegetables remained 1.6% higher in July compared with the same month a year ago, while prices for fruits jumped by 9.8%.

On the other hand, prices in the housing, water, electricity, gas and other fuels group – which has over 26% weight in Oman’s CPI – increased only by 0.6% in July this year compared to July 2021. Prices in the transport group – which has more than 19% weight in CPI – increased by 2.6% in July of this year compared to the same month a year ago.

International institutions such as the International Monetary Fund, the World Bank and global credit ratings agencies expect Oman’s inflation to remain above 3% level in 2022.

Households in Oman and other GCC countries have been largely insulated from rising global inflation due to government measures that capped prices of fuel and essential commodities and diversified food import sources.

Most of advanced and emerging market economies are dealing with soaring fuel and food prices this year. Global inflation has sharply increased driven mainly by the Russia-Ukraine conflict and supply problems due to COVID-19 related restrictions implemented in 2020 and 2021.

Oman’s inflation continues to be significantly lower than most of advanced and emerging market countries.

‘In contrast with the global inflationary trend, Oman’s inflation has been decreasing thanks to the stability in prices of fuel, rent, water, and electricity. Oman introduced and implemented a set of measures such as social protection measures, economic stimulus, and support for small and medium sized businesses which greatly eased upward inflationary pressures from soaring,’ Kuwait-based Kamco Investment recently said.

The IMF expects Oman’s inflation to average 3.7% this year, which is well below the global average.

Despite the growing global inflationary pressures, inflation outlook in Oman remains moderate and does not pose any imminent concern for financial stability in the sultanate, the Central Bank of Oman recently said in its Financial Stability Report 2022.

As per the CBO, inflation expectations for over half of the consumer basket in Oman remain low. Moreover, higher oil revenues have provided more fiscal space to the government for targeted intervention [such as subsidies] to offset any inflationary pressures to complement monetary actions taken by CBO.