Catching inflation by the tail
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Catching inflation by the tail
By Duraid Al Baik, Foreign Editor
Published: October 28, 2007, 00:03
Finally, the Federal National Council, the body that represents the citizens of the country and is entrusted with reflecting their views, had decided to discuss the impact of the spiralling cost of living in the Emirates.
The move is very late, but is far better than ignoring the phenomenon that hits people in the country. The deliberations next month will, hopefully, come up with effective solutions that can be used by the government to tackle the problem.
Based on its constitutional rights and the role it has been playing in the decision making process in the past, the FNC will most probably, in its next session, replay the discussions of the phenomenon that has been discussed publicly by the media and citizens over the past two years.
The impact of inflation was very strong on social and economic aspects of life that became a source of irritation for the nation.
I am not optimistic, nor are the members of the FNC, about the results of the discussions at the council, unless both the government and business community in the UAE implement policies that aim at safeguarding economic growth while ensuring the interests of all components of the nation.
It doesn't mean that the FNC move to discuss the phenomenon is irrelevant or has no value in solving the problem. On the contrary, the long awaited step from the people's representatives is very important as it will enlighten the government and businesses on the hardships that people are facing.
Government efforts have failed to control inflation or reduce its impact on the people. The FNC move might come up with some magic. Since the launch of the current government, Shaikha Lubna Al Qasimi, Minister of Economy, has been warning businesses of tough penalties against arbitrary price increases.
She has affirmed, more than once, that the ministry will not tolerate hikes in prices unless they are supported by strong justification.
Unfortunately, the price of almost every commodity and service offered in the country has been increasing since then and the situation seems to be out of control. Local business cartels have managed to increase prices with the approval of the ministry in the past six months to the levels they have requested.
Whether they are justified or not, price increases are harmful to the economy and will eventually have a negative impact on the growth and the competitiveness of the country.
Cartel manipulation
A clear example of how the business cartels were so successful in pushing up the prices is the cartel of dairy products' manufacturers. The prices of different brands of yoghurt and milk have increased by almost 50 per cent after rounds of talks with the ministry.
The bakery cartel is another example of how the ministry has failed to control the price of a traditionally controlled food product like bread. The price of bread has increased by more than 20 per cent and other food products, services and commodities followed suit, registering similar increases.
The past two years have been financially very tough on families in the UAE. The overall inflation was about 10 per cent in 2006 and this year the inflation might touch another high. The situation, in general, is beyond the capacity of ordinary people and businesses to absorb.
Tackling the problem of inflation is a delicate subject because of two aspects, which seem contradictory.
The first aspect: the UAE has embraced a free economic system since the country was established in 1971. The prosperity and development which was achieved in the past 36 years are just manifestations of the success of free market policies.
Nobody can ignore that the mechanism of the market has worked wonderfully in the past three decades. Abandoning such policies for the sake of controlling inflation now is quite dangerous because it means that the economy will never be able to maintain its balance based on its internal forces in the future, and it will rely on the government to correct economic disturbances. This is quite risky and unwanted at this time.
The second approach to address inflation by imposing controls over the prices of basic products at critical periods such as during two-digit inflation periods is an option, but requires pumping of government subsidies which might be misused and the government does not seem ready to do so at this stage.
Economists, who defend government interference, believe that the UAE government has enforced some control over the basic products which was quite useful to the economy.
Controlling the prices of petrol, electricity and water, in addition to some basic food items like bread, in the past was helpful in controlling inflation. The recent wave, however, was beyond government's control.
The business community and players in different economic sectors, like real estate, should understand that inflation will not spare them in the end and if they are able to force the public to pay more for prices of goods and services they are providing, the country will suffer because it will lose its competitive edge to other countries and consequently they will lose too.
Irresponsible acts by some sectors put at risk the prosperity and growth achieved in the past 30 years. The chambers of commerce and economic department should educate businesses that inflation will not be in their favour in the long run even if they extract more profits now.
The government, on the other hand, should discuss its decisions and their impact on inflation. Hiking governmental fees and introducing additional ones is quite dangerous at this stage and should be considered carefully.
Fighting inflation is a general responsibility and we will not win against it unless businesses support the government and the society to achieve their goals.
Published: October 28, 2007, 00:03
Finally, the Federal National Council, the body that represents the citizens of the country and is entrusted with reflecting their views, had decided to discuss the impact of the spiralling cost of living in the Emirates.
The move is very late, but is far better than ignoring the phenomenon that hits people in the country. The deliberations next month will, hopefully, come up with effective solutions that can be used by the government to tackle the problem.
Based on its constitutional rights and the role it has been playing in the decision making process in the past, the FNC will most probably, in its next session, replay the discussions of the phenomenon that has been discussed publicly by the media and citizens over the past two years.
The impact of inflation was very strong on social and economic aspects of life that became a source of irritation for the nation.
I am not optimistic, nor are the members of the FNC, about the results of the discussions at the council, unless both the government and business community in the UAE implement policies that aim at safeguarding economic growth while ensuring the interests of all components of the nation.
It doesn't mean that the FNC move to discuss the phenomenon is irrelevant or has no value in solving the problem. On the contrary, the long awaited step from the people's representatives is very important as it will enlighten the government and businesses on the hardships that people are facing.
Government efforts have failed to control inflation or reduce its impact on the people. The FNC move might come up with some magic. Since the launch of the current government, Shaikha Lubna Al Qasimi, Minister of Economy, has been warning businesses of tough penalties against arbitrary price increases.
She has affirmed, more than once, that the ministry will not tolerate hikes in prices unless they are supported by strong justification.
Unfortunately, the price of almost every commodity and service offered in the country has been increasing since then and the situation seems to be out of control. Local business cartels have managed to increase prices with the approval of the ministry in the past six months to the levels they have requested.
Whether they are justified or not, price increases are harmful to the economy and will eventually have a negative impact on the growth and the competitiveness of the country.
Cartel manipulation
A clear example of how the business cartels were so successful in pushing up the prices is the cartel of dairy products' manufacturers. The prices of different brands of yoghurt and milk have increased by almost 50 per cent after rounds of talks with the ministry.
The bakery cartel is another example of how the ministry has failed to control the price of a traditionally controlled food product like bread. The price of bread has increased by more than 20 per cent and other food products, services and commodities followed suit, registering similar increases.
The past two years have been financially very tough on families in the UAE. The overall inflation was about 10 per cent in 2006 and this year the inflation might touch another high. The situation, in general, is beyond the capacity of ordinary people and businesses to absorb.
Tackling the problem of inflation is a delicate subject because of two aspects, which seem contradictory.
The first aspect: the UAE has embraced a free economic system since the country was established in 1971. The prosperity and development which was achieved in the past 36 years are just manifestations of the success of free market policies.
Nobody can ignore that the mechanism of the market has worked wonderfully in the past three decades. Abandoning such policies for the sake of controlling inflation now is quite dangerous because it means that the economy will never be able to maintain its balance based on its internal forces in the future, and it will rely on the government to correct economic disturbances. This is quite risky and unwanted at this time.
The second approach to address inflation by imposing controls over the prices of basic products at critical periods such as during two-digit inflation periods is an option, but requires pumping of government subsidies which might be misused and the government does not seem ready to do so at this stage.
Economists, who defend government interference, believe that the UAE government has enforced some control over the basic products which was quite useful to the economy.
Controlling the prices of petrol, electricity and water, in addition to some basic food items like bread, in the past was helpful in controlling inflation. The recent wave, however, was beyond government's control.
The business community and players in different economic sectors, like real estate, should understand that inflation will not spare them in the end and if they are able to force the public to pay more for prices of goods and services they are providing, the country will suffer because it will lose its competitive edge to other countries and consequently they will lose too.
Irresponsible acts by some sectors put at risk the prosperity and growth achieved in the past 30 years. The chambers of commerce and economic department should educate businesses that inflation will not be in their favour in the long run even if they extract more profits now.
The government, on the other hand, should discuss its decisions and their impact on inflation. Hiking governmental fees and introducing additional ones is quite dangerous at this stage and should be considered carefully.
Fighting inflation is a general responsibility and we will not win against it unless businesses support the government and the society to achieve their goals.
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History repeats
Having a currency pegged to the US dollar can't help. The US Federal Reserve Bank is printing US dollars at an unprecedented rate. As more dollars are printed, any linked currency loses value.
Similarly, any commodity priced in US dollars will cost more.
The cost per barrel of oil has not gone up in price significantly.... the number of devalued US dollars to purchase a barrel has increased.
What's a merchant to do but ask for more pieces of devalued paper to achieve his previous profit margin! The consumer has to work harder to make up the difference.
Empire of Debt written by William Bonner & Addison Wiggin describes these phenomena of human nature from a historical and current perspective.
Similarly, any commodity priced in US dollars will cost more.
The cost per barrel of oil has not gone up in price significantly.... the number of devalued US dollars to purchase a barrel has increased.
What's a merchant to do but ask for more pieces of devalued paper to achieve his previous profit margin! The consumer has to work harder to make up the difference.
Empire of Debt written by William Bonner & Addison Wiggin describes these phenomena of human nature from a historical and current perspective.
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Blame America first
Check out :
http://www.federalreserve.gov/releases/h6/current/
Actually, M1 has been relatively constant for the last two years. M2 has come up a little over ten percent total in that time period. Hardly an "unprecedented" rate, and due more to an improving economy than anything else. Yes, the American economy is rather healthy, despite what CNN tells you. Inflation is fairly low, which certainly wouldn't be the case if the Fed printing presses were out of control. The high price of oil is largely due to a sharp increase in demand (mainly China, or so I'm told).
I can't comment on Dubai's inflation rate (I've spent a total of three weeks there this year), but I'll bet a drop in the dollar has relatively little to do with it. Eventually the dollar will reverse direction. Prices in Dubai, it seems, won't.
http://www.federalreserve.gov/releases/h6/current/
Actually, M1 has been relatively constant for the last two years. M2 has come up a little over ten percent total in that time period. Hardly an "unprecedented" rate, and due more to an improving economy than anything else. Yes, the American economy is rather healthy, despite what CNN tells you. Inflation is fairly low, which certainly wouldn't be the case if the Fed printing presses were out of control. The high price of oil is largely due to a sharp increase in demand (mainly China, or so I'm told).
I can't comment on Dubai's inflation rate (I've spent a total of three weeks there this year), but I'll bet a drop in the dollar has relatively little to do with it. Eventually the dollar will reverse direction. Prices in Dubai, it seems, won't.
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note: original post is from todays gulfnews
http://gulfnews.com/opinion/columns/.../10163344.html
As for Dubai inflation, its part property market, part increased prices on imported goods from not only Europe but also SE Asia and India as the currencies gain against the AED and part speculation/greed.
Depending on who you are is how you distribute the cause of inflations between them.
1/3 of the apartments in marina are empty because landlords are speculating rents will keep going up and they will avoid the current rent cap (so much for market forces).
The government is increasing transport cost with tolls and the ever increasing paid parking in residential areas. Also the government does not mind the increasing rents because of the 5% civic tax included in the electric bill.
Also coming is a sales tax in the near future that they are working on.
Inflation is not the issue and never will be, its inconvenient for everyone but the issue is retaining as much of the money earned by expats in the local economy instead of having it sent home.
http://gulfnews.com/opinion/columns/.../10163344.html
As for Dubai inflation, its part property market, part increased prices on imported goods from not only Europe but also SE Asia and India as the currencies gain against the AED and part speculation/greed.
Depending on who you are is how you distribute the cause of inflations between them.
1/3 of the apartments in marina are empty because landlords are speculating rents will keep going up and they will avoid the current rent cap (so much for market forces).
The government is increasing transport cost with tolls and the ever increasing paid parking in residential areas. Also the government does not mind the increasing rents because of the 5% civic tax included in the electric bill.
Also coming is a sales tax in the near future that they are working on.
Inflation is not the issue and never will be, its inconvenient for everyone but the issue is retaining as much of the money earned by expats in the local economy instead of having it sent home.
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Canada Kid
Just where do you get the idea that the Federal Reserve is printing notes at an "Unpresented rate".
Where in Hell do you come up with such drivel, and why do you feel it necessary to post it?
Where are your facts please?
Where in Hell do you come up with such drivel, and why do you feel it necessary to post it?
Where are your facts please?
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PITA
I'm certainly no expert, but I do think about how I can afford to retire .... and there is alot of 'stuff out there' to read. The book I mentioned in my post is a good reference for current events.
cheers, CK
Overprinting currency has been a rather common occcurence in various countries around the world - see this blog:
http://www.dollardaze.org/blog/?post_id=00107&cat_id=17
The money that is created by the Fed's magic checking account is known as base money and consists primarily of Federal Reserve Notes (i.e., paper currency, dollar bills) and bank reserves, which are deposits of commercial banks with the central bank and are recorded electronically at the central bank. Only the Fed can create base money, and the Fed can create no other type of money except for base money. Paper bills make up the majority of base money. At this time, the U.S. Federal Reserve counts about $812 billion of base money, with $750 billion in bills and coins, and $62 billion in bank reserves. During the 1990s, U.S. base money grew at an average rate of 7.14 percent per year ............ (last year was 12%) CK
http://www.dollardaze.org/blog/?post_id=00240
Inflation has only one cause and that is the Federal Reserve itself. In the United States, the supply of money and credit is regulated by the Fed. Since inflation is by definition an increase in the supply of money and credit, only the Fed can create it. If the money supply were held constant, increases in some prices would be offset by decreases in others. The result would be no overall inflation. In fact, without government created expansions of the money supply, the natural tendency of prices would be to decline as technology allowed for more efficient production of goods and services. So while most regard the Fed as the primary inflation fighter, in reality it is the sole inflation creator.
The main problem for consumers is that most inflation is not detected by the Fed's preferred measuring tools. As a result, inflation has been allowed to grow unchallenged.
http://www.dollardaze.org/blog/?post_id=00256
I'm certainly no expert, but I do think about how I can afford to retire .... and there is alot of 'stuff out there' to read. The book I mentioned in my post is a good reference for current events.
cheers, CK
Overprinting currency has been a rather common occcurence in various countries around the world - see this blog:
http://www.dollardaze.org/blog/?post_id=00107&cat_id=17
The money that is created by the Fed's magic checking account is known as base money and consists primarily of Federal Reserve Notes (i.e., paper currency, dollar bills) and bank reserves, which are deposits of commercial banks with the central bank and are recorded electronically at the central bank. Only the Fed can create base money, and the Fed can create no other type of money except for base money. Paper bills make up the majority of base money. At this time, the U.S. Federal Reserve counts about $812 billion of base money, with $750 billion in bills and coins, and $62 billion in bank reserves. During the 1990s, U.S. base money grew at an average rate of 7.14 percent per year ............ (last year was 12%) CK
http://www.dollardaze.org/blog/?post_id=00240
Inflation has only one cause and that is the Federal Reserve itself. In the United States, the supply of money and credit is regulated by the Fed. Since inflation is by definition an increase in the supply of money and credit, only the Fed can create it. If the money supply were held constant, increases in some prices would be offset by decreases in others. The result would be no overall inflation. In fact, without government created expansions of the money supply, the natural tendency of prices would be to decline as technology allowed for more efficient production of goods and services. So while most regard the Fed as the primary inflation fighter, in reality it is the sole inflation creator.
The main problem for consumers is that most inflation is not detected by the Fed's preferred measuring tools. As a result, inflation has been allowed to grow unchallenged.
http://www.dollardaze.org/blog/?post_id=00256
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Looks like the guy (Hewitt) is trying to get you to buy gold - at a very high price! Mining stocks too. Good hook for airline pilots, who tend to buy high and sell low. Anyway, I'd be careful about what you read on "sky is falling" sites such as the above, as well as the definitions in the post.
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CK,
I think we all are here to better ourselves financially, although not doing so at the present.
My call to you is that the Fed is not pumping more NEW money into the system at present, than they have been doing for, since the institution has been invented.
I read the blogs and the links you sent, and agree with what the author has said............ to a degree.
I don't stand behind the present administrations pretext of "sticking their collective heads in the sand and saying things are just rosey" But I also am not crying out that the sky is falling either.
The Internet can be a wonderful thing, you can always find someone to write something to justify a position. Even argue both sides of an issue.
You as Canadian should be extremely happy now with the fact that the Can dollar is worth So much compared to the US dollar.
That was why I wrote what I did. Not to get in a discussion about how the political machine controls the money structure.
We can have that discussion over a few drinks and spend all night on that subject and still never agree.
PITA
I think we all are here to better ourselves financially, although not doing so at the present.
My call to you is that the Fed is not pumping more NEW money into the system at present, than they have been doing for, since the institution has been invented.
I read the blogs and the links you sent, and agree with what the author has said............ to a degree.
I don't stand behind the present administrations pretext of "sticking their collective heads in the sand and saying things are just rosey" But I also am not crying out that the sky is falling either.
The Internet can be a wonderful thing, you can always find someone to write something to justify a position. Even argue both sides of an issue.
You as Canadian should be extremely happy now with the fact that the Can dollar is worth So much compared to the US dollar.
That was why I wrote what I did. Not to get in a discussion about how the political machine controls the money structure.
We can have that discussion over a few drinks and spend all night on that subject and still never agree.
PITA
