( CNN ) -- The declining dollar , surging oil prices , and exploding growth across the Persian Gulf are causing inflation levels to rise . Kuwait has already abandoned the dollar . And some analysts say the rest of the GCC may have to do the same to fight inflation . But do the Gulf banks agree ? And how far do they think switching to a basket of currencies will bring down prices ? Qatar and the U.A.E . registered the highest inflation levels at 10 percent this week . In Oman , inflation was running at almost 4 per cent and 2.8 percent in Saudi Arabia . Strong growth across the region , fueled by surges in oil prices have been a major factor . Supply has been struggling to keep up with demand in the growing economy , causing bottlenecks in supply which drives inflation . Ahmed El Shall , CFO of Dubai Bank said the building boom in the U.A.E . is another `` primary cause '' of inflation . Rents are on the rise , causing other prices to climb . `` If you consider that 36 percent of the inflation measure is made up of housing , you realize the inflation rate for the U.A.E . is 10 percent and above simply because rents have been increasing above 10 percent per annum , '' he told CNN . But the other factor at play has been imported inflation via a weak U.S. dollar . Last week , in response to the sub-prime mortgage crisis , the U.S. Federal Reserve cut interest rates by 0.5 point to 4.75 percent in order to save the nation 's economy from a slow down . Because currencies in the Gulf Co-operation Council region including Saudi Arabia , the U.A.E. , Qatar , Bahrain and Oman are pegged to the dollar , their exchange rates also decline . This means prices of imports from non-dollar areas have increased , causing inflation . With currencies pegged to the dollar , banks in the region must also follow the Fed 's lead with their interest rates . This is another driver for inflation because lower rates drive investment . But to soften the blow , U.A.E . and Qatar kept rate cuts to a minimum and Saudi Arabia and Oman decided not to budge at all . Rising prices are beginning to take their toll across the region . Dubai is now one of the most expensive cities in the world . Expats , with investments and bills to pay at home , are especially feeling the pinch of a weak exchange rate . As prices rise , the debate intensifies about whether countries in the GCC should review their dollar pegs and link instead to a basket of currencies . As analysts argue , when these countries first decided to peg to the dollar , oil prices were low and the U.S. currency strong . Today the opposite is true . Fitting to a basket , they say , would better reflect the GCC 's modern economic situation . Kuwait was the first country in the GCC to jump ship . In May it ditched the dinar 's peg and moved to a basket of currencies . But , as Shall told CNN , the Kuwait revaluation is yet to show an effect . `` My understanding is that so far it has n't really shown any improvement in inflation . To the contrary , it suffers in the exact same way Qatar and the U.A.E . suffer . '' Qatar 's central bank governor , Abdullah Al-Thani , told reporters and bankers last month that they were taking measures to control prices and rents to decrease inflation . But the dollar peg would remain , he said . Saudi Arabia 's refusal to cut interest rates with the Federal Reserve has prompted more speculation that it was preparing to break its dollar currency peg . But the Kingdom has continued to deny this . Saudi bank , SABB , also `` firmly '' believes the Saudi riyal will not be revalued . `` An expected change in the currency regime will take place only if the dollar weakens at an alarming rate and is sustained over the medium term , '' it said in a recent report . Excessive speculation about devaluation , `` could cause observers to overlook the GCC growth story , '' said the report . `` The Kingdom 's competitive advantage , in petrochemical exports for example , is not being affected , as most are priced in dollars . '' E-mail to a friend .
Growth increases across region with highest rates in Qatar and the UAE . Strong growth , low rents and weakening dollar , inflation increases . As prices rise , debate intensifies about the region 's price pegs to the dollar .