Inflation expectations for the Sultanate of Oman, notwithstanding soaring global inflation stoked by the Ukraine-Russian war and lingering supply-chain constraints, will remain moderate, according to the Central Bank of Oman (CBO).
The apex bank attributed this outlook to the benign growth in prices of more than 50 per cent of the goods and services that together constitute the ‘consumer basket’ for determining consumer price index trends.
“The inflation outlook in Oman remains moderate as the inflation expectations for over half of the consumer basket remain low,” said the Central Bank in its Financial Stability Report 2022 published here on Sunday.
“Moreover, the higher hydrocarbon revenues have provided more fiscal space to the government for targeted intervention to offset any inflationary pressures to complement monetary actions taken by CBO,” it further noted.
In a foreword, CBO Executive President Tahir bin Salim al Amri said the Central Bank, taking a cue from the US Fed’s decision to raise its benchmark interest, had raised its repo rate to 2.25 per cent by mid-June 2022 in three successive rate revisions.
Despite these measures, a recent Credit Conditions Survey foresees an increase in the demand for credit from households and businesses, while also anticipating the easing of credit availability to both segments, the central bank noted.
Also auguring well for the moderate inflation outlook for Oman is the slump in property prices and rents due to the decline in the expatriate population. “Due to ample supply, housing costs are not expected to rise sharply in the near term. Moreover, the prices of utilities (water, gas, electricity) are administered, the price of fuel for the year 2022 has been capped at the October 2021 level, and the communication sub-index has been almost flat though slightly declining for almost a decade."
"Considering this, although landed cost of some food items in particular grains and edible oil will contribute to higher prices, the inflation will remain benign for over 50 per cent of the consumer basket,” the report said.
The Central Bank nevertheless acknowledged concerns about the rising cost of living and interest rates for the sustainability of household debt.
“Households with lower incomes are disproportionately more vulnerable to the soaring inflation as they have narrower buffers to maintain their debt servicing capacity in the face of rising costs,” it noted.
“Nevertheless, risks from these developments remain contained in Oman due to moderate inflation expectations, targeted subsidies to protect the more vulnerable strata from inflation, and fixed-rate personal loans,” it added.
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