By Santhosh V. Perumal/Business Reporter
Expatriates living in Qatar are headed to ‘multiple jeopardy’ with increasing apprehensions over the rising cost of living, especially due to Kahramaa’s new pricing mechanism and its expected “cascading” effects.
Inquiries with a cross section of individuals and financial experts point to fears over heightened inflationary pressures.
The introduction of a slab system in the tariffs of electricity and water and its consequent increase in the bill is expected to have a cascading effect in the general price levels, they said.
“The new pricing mechanism of tariffs in utilities is expected to precipitate the cost push inflationary pressures,” market sources said.
Housing, water, electricity and gas group has a combined weight of 21.89% in the consumer price index (CPI) basket.
Rent, which is a major sub-component in the group, is also on the rise, especially in the low to mid residential segment.
“The demand for new residential property is most evident in the lower to middle income bracket, where developers have struggled to meet demand for affordable residential accommodation,” DTZ Qatar said in its latest report.
The effect of increase in the utility bill is expected to reflect in the forthcoming CPI inflation data, which the Ministry of Development Planning and Statistics releases every month.
“It will have a marginal impact,” an economist said, adding the knock-on effect of the rise in utilities tariffs across a spectrum of goods and services may lead to a vicious cycle.
However, an analyst tracking the utilities sector said the new mechanism is to improve the balance sheet of the sector as it would encourage rationalisation and curb excessive usage.
“What is good from a policy perspective may not seem good for the end consumers,” he said.
The impact of the new pricing mechanism in utilities is expected to have an imminent reflection in the hotel and restaurant sector, which has 6.08% weightage in the CPI basket, according to sources.
Recently, expatriate schools had increased fees due to the rise in working costs, and inquiries with local expatriate schools found that a vast majority of parents do not get education allowance from their employers. Education group carries 5.75% weight in the CPI basket.
Individually, every component - whether rent or cost of utilities and education - may have only a marginal impact; but on a consolidated basis, it could result in lower disposable income for the average households and thus, theoretically lower aggregate demand in an economy, which is slowing down due to falling oil prices, one of the financial experts said.
After the United Arab Emirates recently increased the domestic fuel price as part of cutting subsidies, there are apprehensions that Qatar may also follow the same path.
Almost 50% of the CPI basket are under inflationary expectations build-up (if apprehensions over transport sector are also taken into account), the sources said.
“It is a multiple jeopardy as an average expatriate household is pushed towards the wall,” an expatriate said.
A silver lining for expatriates has been the favourable foreign exchange rates (albeit with volatility) but with increasing living costs, the prospects of remittances to home countries are also diminishing, another expatriate said.