Inflation hits new records [Archives:2007/1089/Local News]

September 27 2007

SANA'A, Sept. 26 ) A recent report by the Arab Unity Economic Council has stated that inflation in Yemen was ranked the highest among all Arab countries, averaging 15.5 percent during 2006. The Report stated that Yemen is among ten Arab countries which has experienced rapid inflation. However, Yemen's inflation of 15.5 percent is almost double that of UAE's inflation of 7.7 percent, which was described as having the second-highest inflation after Yemen.

The Report attributed the increase in inflation due to government policies that could not accommodate the increasing cost of food imports, as well as the increase in consumer demand and the reduction of government subsidies.

Inflation, which could be described as the increase in the overall price level of an economy, is one of the most lauded disputes in Yemen.

In a speech last month, president Saleh has stated that he is willing to hand over the leadership of the country to any party which guarantees that it can keep inflation under control, exemplifying the profoundness of the political dialogue regarding inflation in Yemen.

President Saleh has called on opposition parties to assist the government's efforts in controlling inflation in Yemen. This came in an attempt to control public outrage fueled by opposition remarks that the regime's irresponsible economic policies and reforms is increasing poverty in the country and diminishing the middle class.

Several demonstrations took place during the last two months in protest of the increasing inflation especially in the prices of foodstuff.

The government of Yemen has made several attempts to provide short-term solutions for this problem. Solutions such as paying all government employees an additional salary – which works out as an 8 percent increase in annual income in order to limit the impact of the increasing prices. While other remedies included allowing international companies to import foodstuff in Yemen in an attempt to increase supply and intensify competition. However, little impact did these policies have.

Economic Experts attribute the increase in inflation due to the deterioration of the value of the American dollar in recent month, considering that the Yemeni Riyals is pegged against the American dollar, which fixes the value of the Riyal against the dollar. Therefore the decline of the American dollar resulted in the decline in the value of the Yemeni Riyal, which means that imported foodstuff paid for in either Yemeni Riyal or American dollar would significantly increase, thereby increasing the cost of food imports.

The Central Bank of Yemen has time and again sold U.S. dollars in the local market as another attempt to control inflation. However, given the fact that U.S. dollars suffer from decline in value, little impact did this policy do in terms of controlling inflation.