Thursday, July 26, 2007

postively contradictory

I have no references to this information except the Internet and I can't seem to find the pages where I got it from, so all those who are about to debate with me - please forgive me.

I had read sometime - not too long ago - that the financial status of the country is positive during May and June. Although, at the same time, the Central Bank of Oman - CBO - issued a statement saying that the level of inflation in Oman had reached 3.2%. Whereas the level of inflation in the Kingdom of Saudi Arabia is 2.6%.

How is it possible to give out such a positive and contradictory statement about the economy is beyond me. Especially after the blow of a disaster such as Gonu.

Does anyone have an explanation?


Per Your Request said...

Actually, there is a positive relationship between Growth of GDP and inflation. Growth of GDP is usually what people state when talking about the state of the economy. When the country is doing well, it demands goods and services at a higher rate (people have more money to spend). Thus, the increase in demand pushes up prices, because people are willing to pay more for the good. The increase in prices is inflation.
Central banks goal is how to balance good growth rates, and minimize the inflationary pressures.
I hope that helps, if you have anyother questions dont hesitate.

Sleepless In Muscat said...

Per Your Request:

So you're telling me the spending power in KSA is bigger than Oman's although the inflation is higher.

It doesn't make sense to me.

Per Your Request said...

I did not make any comparisons actually. My statement is just to show that positive growth rates (good) lead to inflation (can be bad)

To fully explain this economic principle via this post will require more time than Im capable to devote.
Simply put, its possible that Oman's market is more responsive to small changes in demand, where as KS is a more rigid market.

Some will want to say one economy is better than the other based on this information. Honestly, each has its pro's and cons. The one thing you can say from this information is that they require different types of policy (magnitude). This is one reason I wasnt in favor of the common currency.

Sleepless In Muscat said...

Per Your Request:

Thank you for your help, anyhow, on explaining things here.