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Last week's edition of The Economist carried a cover in which the giant spectre of inflation lurked beneath an escalator of well-heeled business people.

The leader article suggested that it is not the rich countries that have most to fear from the effects of runaway inflation, but 'policymakers in emerging economies [who] are the ones who should take most heed' of the return of giant inflation. Too many are assuming that the current situation is a short-term supply shock and are relying on price controls and subsidies to cap prices rather than by raising interest rates.

Loose monetary policy in the 1970s opened the door to record rates of inflation. Loose monetary policy is currently characteristic of the emerging economies of the Gulf region, including Oman, where the currencies are linked to the dollar, and concurrently where growth in prices has been highest.

The economic history of the 1970s could repeat itself. Starkly, The Economist Warns that "the longer emerging economies hold down their exchange rates, the greater the risk of rising global inflation." Instead, the Gulf governments are following US moves. Since this doesn't make economic sense, it's all to easy to assume that political influences are at work.

The US Federal Reserve cut interest rates to just 2% at the end of April, a move mirrored almost immediately by the UAE Central Bank since the dirham is pegged to the dollar. As a result of the continuing weakness of the US dollar, and the dirham link, European and Russian investors have been crowding in to UAE to buy property and assets, assuming that their investments are virtually risk-free, with Gulf currencies remaining committed to the dollar peg.

"Dubai property with its 6%-10% rental yield looks an excellent buy in a world of 2% money."

"Prices that look attractive today could be out of reach for many by the late autumn as a house price spiral takes off fuelled by lower and lower US interest rates. That could even prove to be the economic force that breaks the dirham peg."

But revaluation would bring its own problems, possibly attracting more investment which could raise inflation even further.

How much would that truly matter to the local market which continues, remorselessly, to entice the rich world to spend its wealth in Dubai? Are all nationals adequately housed? Oman's development plans appear pallid by comparison. Gulf News, almost looking over its shoulder in reporting that Oman currently had just one nine-hole golf course. although ten are planned, commented that Oman "must offer more than beach and sun if it is to compete with the Gulf tourism hub of Dubai."

While property remains attractive to foreign investors, MEED has reported that international investors have become wary of investing in Middle Eastern debt because of the risk of appreciation of local currencies. Regional banks have adopted local currency tranches, with international banks raising the partner dollar funding.

To be honest, I haven't found it at all easy to discover the Central Bank of Oman base rate. By a devious process of deduction, I have arrived at a figure of around 8.5% - high by the standards of the US Federal Reserve. But swingeing increases in bank interest rates could help to deter monetary demand.

So given this wealth of overseas commentary, what can we make of an item published in the Times of Oman on 21st May, entitled How to tame the bull?

Broadly, the writer proposes the view that inflation is OK, really. At the time, she had not had the opportunity to read the warning words of The Economist quoted at the opening of this piece. If you believe The Economist instead of the Times of Oman, then policymakers in Oman are not taking this round of inflation seriously.

I can only quote.

"inflation is not as alarming a phenomenon as it is being made out to be. [It's] merely [ ] a balancing act of the market."

Most commentators would not agree with this statement. Since the 1970s, western central banks have been given increasing power to tackle the problem which actually restricts growth, if not driving it backwards.

"The one solution to keep the ill effects of inflation at bay is to minimise one’s needs and allocate income for needs in a better way, says a student of economics at a reputed university in the Sultanate."

So you have to resign yourself to restricting economic development?

Inflation is "not one-sided. If there is a rise in price somewhere, there is a fall somewhere too. While the price of rice may be high, your mobile bill is not as much as it used to be earlier. Also, with a recharge for RO1, you can now speak for longer than you could talk, say, in January this year. Cell phones and electronic items are also becoming cheaper by the day."

Excuse me? Does that mean that all residents of Oman can dismiss the rise in the price of rice, and by extension, other foodstuffs, without worrying about the consequences? Does the cost of a call on a cellphone truly compensate for a diminished diet? It's the rising cost of foodstuffs that is contributing most to inflation in emerging economies such as Oman. Are all Omani residents so well cushioned against the effects of inflation that they can absorb increased costs of foodstuffs? Having reached their current high price levels, commodity prices are not likely to come down, even with increased supply. It's just that the rate of increase in price will slow down with increased supply. UN warns about rising food costs

How to get out of this impasse? Well, Gulf News reported on 26th May that the US had hinted that it might countenance revaluation of the Gulf currencies. A US Treasury report to Congress on International Economic and Exchange Rate Policies (FX manipulation report) hinted at a potential US nod for currency reforms in the Gulf.

"The US recognises significant appreciation pressures on the Gulf Cooperation Council (GCC) countries. From a fundamental standpoint, we believe the US authorities have hinted that there is a need for more exchange rate flexibility," said two currency analysts of Merrill Lynch.

It's a chink in the armour of the US treasury.

How long will it take for the US Treasury to relax its grip on the economies of the Gulf states?

"If any country is found to be a currency manipulator, it is required to hold talks with the US government."

So, Tmes of Oman, inflation isn't a temporary glitch.

Pulling in your belt and going hungry isn't going to make an iota's worth of difference. Lobbying the US treasury might. But who holds the power?

It's probably of no interest to newsbriefsoman readers, but I was just a bit puzzled as to why Oman's Ministry of Defence told Serco and its local partner, the Bahwan Engineering Group, only in February this year that it was not intending to proceed with construction of the Joint Technical College, Oman, virtually four years to the day after the company had been told that it was the preferred bidder. A contract had been expected within three to four months of the 2004 announcement.

Serco has a prestigious international reputation and has built up its business thanks to UK government policies of privatisation and outsourcing. The company has been described as the most admired service company in Britain.

Originally created as a UK subsidiary of Radio Corporation of America in support of the cinema industry, RCA Services Ltd changed its name to Serco in 1987. The company has been prominent in defence services in the UK for over 40 years. Just under half of its business is in overseas projects. The Oman Military Training College would have been a jewel in its crown. Worth 1.4 billion US dollars, the 50/50 Serco-Bahwan partnership would have been a 30 year private finance initiative to design, build and operate the JTC.

Serco apparently had ample background and experience to undertake the project since it manages facilities at the Defence College of Management and Technology (DCMT) at MoD Shrivenham in UK. The lead academic partner at DCMT is Cranfield University which would also have been a delivery partner in JTC Oman, along with TAFE Western Australia (TAFEWA) & Edexcel International (UK). Oh yes, there is a legacy website about Oman's military technological college built in more optimistic times.

The company had been active in Oman in various spheres, sponsoring the BBC Young Musicians of the Year concert in 2006 and participating in the e-Games conference also in 2006. Professor Andrew Self OBE, who described the Merlin flight simulator, was apparently drawing up military and civilian vocational career programmes, from national diplomas to masters degrees, for the new college.

Read a summary of the proposed education and training programme anticipated by Education and Training International based at the University of Western Australia You can still see details of the proposed construction of the college.

So what happened? Why was the military and technical training college apparently abandoned? I hardly think it was simply cost, since Oman is not exactly short of funds at the moment.

The language of instruction would have been English. Would that have posed a problem when recruits are native Arabic speakers? I think it's easy to underestimate just how difficult it can be to raise language skills to an appropriate level.

Was there someone in Oman's Ministry of Defence or at other levels of government who felt that Serco's announcement in 2004 had pre-judged the final outcome?

Was it a veiled warning to the UK defence establishment that Oman did not depend on UK based support, since Serco also offers services to Britain's armed services? In 2007 Gulf News reported that the head of the British government's Defence Export Services Organisation was in positive mood about the outcome of talks with the Omani authorities. The delay in signing a contract was typical, apparently, of delays in UK negotiations of privately funded military service provision in general. Perhaps the Omanis got fed up with the protracted negotiations. Perhaps Serco had set the price too high?

You could even ask to what extent the British defence industry is intertwined with the company.

Has another overseas institution or nation offered alternative training? Is a regional GCC military college in the offing?

All fanciful conjectures to fuel any number of conspiracy theories.

Still, Serco doesn't depend on the Oman contract. It's just won the option to operate Dubai's new Metro system for ten years, probably based on its experience as franchise operator of London's Docklands Light Railway. Its partners in the bid might feel injured about what has happened though.