Concerns are mounting that $100 oil prices, if hit, could be enough to dislodge the precarious global recovery — thrusting the world economy back into recession, or even worse, into another global financial crisis.
But while that is certainly a legitimate worry, there may actually be another equally pressing one rearing its ugly head too.
We’re talking about what happens if volatility in the WTI-Brent spread doesn’t settle.
The World isn’t dead; it’s “in a coma.”We have recently discussed the KD 1,000 Amiri Grant that Kuwaiti citizens are receiving (click hereand here) in celebration of the 50th anniversary of Independence. One of the points that many talk about is that the grant is going to create inflation. Personally, I don’t feel that this is the case, as the grant is just going to be paid once and is not recurring. To further illustrate my point of view, I will take a detailed look at the issue at hand.
First, lets step back a bit and define inflation. Inflation, according to investopedia.com is:
“The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.”
So, people arguing that the grant causes inflation are claiming that the cost of goods and serivces is going to rise further as a result of people having an extra KD 1,000 in their bank accounts.
Now, let us look at what the CPI basket (how inflation is measured) includes to determine whether these goods and services are going to rise subsequent to the Amiri grant.
The first two constituants, Food and Beverages & Tobacco, will highly likely see no increase in prices as the major sales outlet for these products are the Co-ops, who control prices. Private markets (Sultan Center, City Center, etc.) will not raise prices as well to compete. Clothing and Footwear might see an increase depending on the retailer, but will need permission from the Ministry of Commerce. Housing will likely not be affected as the grant is to small relative to the price of land, a house, or an apartment’s rent. Some of the Household Goods & Services constituants (Furniture and Home Appliances) might be affected, but again it will depend of the retailer. Transport & Communication and Education & Healthcare will not be affected as prices are regulated by the government. Some constituants of the Other Goods and Services basket (Recreational Goods, Personal Care, and Misc. Goods and Services) might be affected but it will depend on the retailer.
So of the CPI basket, on 24% of the products might see an increase in price by retailers wanting to profit from the Amiri Grant. And even if all the products within the 24% see an increase in pricem how big will that increase be? An iPhone selling for KD 290 instead of KD 280? 5% increase? Meaning that inflation will rise by 1%. However, the scenario of everyone raising their prices is highly unlikely, making the Inflation affect of the Amiri Grant weak.
Saudi Prince Alwaleed Bin Talal is one of the more well-known Saudis, mostly because of his presence and notoriety in the world of international business. Alwaleed, through his investment company Kingdom Holding Co., owns a large stake in Citigroup and other well known corporations, and also owns Rotana, a media company. His vast personal wealth allows him to be consistently considered among the world’s richest.
Alwaleed’s Kingdom holding had a great fourth quarter in 2010, according to a Reuters report. The company “posted a 50.8 percent rise in its fourth-quarter net profit to 234.6 million riyals” and “made a net profit of 605.2 million riyals in 2010, up 50.3 percent from the previous year.”
Those are very encouraging figures for Alwaleed, the nephew of King Abdullah. Perhaps the most well-known of his dealings this year was the purchase of $500 million of GM’s new stock offering, which totals a 1% ownership of the company, according to Dow Jones. The move increased the size and diversity of Alwaleed’s US holdings.
Is there a real risk of unrest breaking out elsewhere in the region? Renaissance Capital thinks so. The Russian investment bank argues that, largely for demographic reasons, countries in North Africa and the Middle East are more susceptible to wars and revolutions than others.
Sociologists have long argued that countries facing a “youth bulge” – countries in which men aged 15-34 make up more than 15 per cent of the total population, by Renaissance Capital’s definition – face a particularly high risk of unrest.
