Declining US Dollar Sparking Global Food and Fuel Inflation
Last week the Energy Information Administration (EIA) reported oil inventories supplies rising to 346.7 from 335.7 million barrels over a period of six weeks. The current build did not sway oil prices to decline as the Arab world is going through their own upheaval questioning the uncertainty of oil supply in the near future. The declining US dollar has also attributed to the increase in the price of oil.
The US dollar is the widely held reserve currency in the world which allows countries to purchase commodities to pay for their transactions. The Federal Reserve has kept interest rates low for an extended period to stimulate the US economy, while commodities prices around the world have been increasing such as oil, gold, and food. The EIA reported the US is going through its own food inflation as its Consumer Price Index rose for the third month contributed by both energy and food price hikes.
The National Inflation Association (NIA) stated "the U.S. has been able to export its food inflation to the rest of the world. America's food inflation crisis is so far manifesting itself in Arab nations." The low interest rates provided by the Federal Reserve have increased the liquidity of the US dollar which has led to an increase in commodities and food prices.
Majority of the Arab world consists mainly of oil infrastructure. The Gulf Cooperation Council (GCC) consisting of six Arab countries including Saudi Arabia, Kuwait, Qatar, Bahrain, the UAE, and Oman which import 90 percent of their food and exports one-third of the US demand for oil. The dollar's decline has caused food inflation within these countries.
Back in 2008 the Abu Dhabi's Department of Planning and Economy (DPE) recommended the GCC of de-pegging the dollar and tying it to a basket of currencies much like Kuwait's monetary policy. However the GCC refused to change their policies until monetary union is achieved within their own governments. Currently their stance has not changed as the GCC believe the US economy is more stable in the long term than the European Union. Expect food and fuel inflation to continue to grow as the US Federal Reserve continues to hold interest steady.
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Shamim Hin is a Human Resources professional providing his expertise across the information publishing environments, equity markets, and the financial services industry. His expertise includes Performance Management, Employee Engagement, Training, Cost Control, Retention Initiatives, Employee Compensation and Benefits. Mr. Hin has a Masters in Business Administration from Fairleigh Dickinson University and holds a degree in Psychology from Rutgers University.