Inflation trends QATAR Essay Example | Topics and Well Written Essays - 1000 words

Inflation trends QATAR - Essay Example Qatar is the world’s top liquefied natural gas exporter (Reuters, 2011). The economy of Qatar has a policy of maintaining prices and currency stability. Since the early eighties, â€Å"by stimulating economic policies the monetary policy of Qatar was directed†In specific, the average inflation rate of this period was relatively low. For the period of 90s, the rate was at 2.25% that was due the defensive actions of the central bank. However, the Qatar economy is somewhat pegged, because it maintains its currency at a fixed rate. The major objective of the central bank was to maintain the rate as (Q.R 3.64= $1) (Abdulrazaq, Shotar, & Al-Quran, pp. 118-126, 2003). However, the trends show that inflation in Qatar was falling in the eighties. The reason behind this was that there has always been government intervention due to which it was controlling the inflation prices by having an influence on the money supply. Qatar was experiencing a downtrend in inflation until 2004 wh en the long termed deflationary trend ended (Inflation Data, 2010). (Trading Economics, 2010) Inflation in the Gulf Cooperation Council continued to rise with each of the members experiencing a double-digit rise in prices. However, Qatar is one of the countries that have been under most impact due to the increase. The led the government to enact unprecedented protectionist policies (Hassan & Nakibullah, pp. 1-5, 2008). Qatar experienced 15% inflation in 2008. It is an assumption to have the fastest growing economy in the Gulf Cooperation Council and is an assumption to experience the least changes in inflation this year as well as the next. In December 2010, â€Å"Qatar returned to inflation due to which the costs of living rose to 0.4 percent† (Merzaban, 2008). This was so because there was a rise in the prices of clothes, transport, and entertainment. Similarly, on the other hand, rental and energy costs fell. However, deflation is easing in Qatar in recent years because â €Å"the OPEC member’s economy recovered from a slowdown in 2009 when prices fell from 4.9%† (Merzaban, 2008). However, prices in November remained flat. The three major factors, which contribute in the soaring of the inflation rates in Qatar specifically, are the high levels of government spending, growing demands of housing, because of which the prices of the houses and rents are pushed up, and the pegging of riyals with dollars, due to which the interest rates are falling (Whiteman, 2008). If practically take each factor into account, we come to a conclusion which says, that when there is a general rise in government spending, so this pushes up the aggregate demand, which is one of the causes of inflation taking place. Taking the other factor into account- there is an increase in the demand for housing means that more people are there, which means that increased population, which again increases the aggregate demand, hence pushing the inflationary prices. Furthermore , when one converse about the riyals being pegged against the dollars, this means that the government is holding back its reserves in order to control the prices, which eventually extinguishes and hence this leads to a boost in prices causing inflation in the economy (Whiteman, 2008). Another reason for growing rates of inflation in Qatar is that Qatar is the world’s largest exporter and trans-shipper of Liquefied Natural Gas. In addition, it will remain the fastest growing economy despite the lower oil prices. Due to being the largest exporter of Liquefied Natural Gas, the economy can experience increased rates of currency, which will lead a general increase in prices and hence inflation (Reuters, 2011). The increased rates of inflation that have taken place are mostly due to the higher global food prices. Food is a necessity and due to the increased populat