Inflation recalls ghosts of Arab spring

Inflation is on the rise in the Middle East and North Africa, bringing risks to consumption-driven growth and adding to political strains in the transitional countries least able to cope with them, Financial Times reported Friday. In Egypt, for instance, inflation increased from about four percent in November to about eight percent in February and may rise to 13 percent or more in coming months, says Rachel Ziemba, head of emerging markets at Roubini Global Economics, in a note on Friday. She says Morocco, Jordan and Tunisia are the most vulnerable countries in the region to continued inflationary pressure. That s quite a change in outlook. Last August, Ziemba was writing that consumer prices in the region were surprisingly subdued . She now writes that low base effects and rising global food prices combined with strong global liquidity are driving inflation again. This presents a test for local policy makers, particularly since official inflation likely understates the real price pressures. Instability in the region has been driven partly by economic grievances so governments have an urgent need to stabilize prices. Ziemba says potential support from the  International Monetary Fund may help cushion the blow, but in the absence of job creation, rising prices hit hard. Food prices have outpaced overall inflation, despite price controls. But even though global food prices have moderated, preliminary reports of a weak harvest in the Commonwealth of Independent States could mean prices will rise again, Ziemba says particularly in Egypt and Morocco, which have reduced their food stockpiles. For the wealthier countries in the region, inflation is not necessarily a bad thing. Rising prices in the United Arab Emirates, for example, reflect stronger economic growth, while higher incomes in the Gulf Cooperation Council countries have reduced the pressure from food prices on consumers. But for those struggling to get their economies back on track, it is one more  destabilizing factor.