Drop in Gulf inflation raises deflation fears

It is not long since soaring inflation was the scourge of the Middle East – the number one concern of policymakers. When living costs rose in 2007 and 2008, workers protested as soaring food prices and rents threatened to cloud the benefits of bumper oil revenues.

Yet in recent months the Gulf has found itself in a very different environment as inflation has dropped from double digits to low single figures, causing some economists to raise the spectre of deflation.

Widespread job losses have replaced the pay rises and labour shortages of the years of plenty: the property bubble has burst, global commodity prices have corrected substantially and banks have experienced a liquidity squeeze.