Inflation across the Gulf Arab region will fall slightly in 2008 from its highest in a decade this year as an increasing supply of homes and offices checks rising property costs, the IMF said on Monday.

Economic growth across the world's top oil-exporting region, which have surged on the quadrupling of oil prices in the last five years, would come in at 5.4 percent in 2007 and 2008, the International Monetary Fund said in a report.

Inflation in Saudi Arabia and five other oil producers will reach an average of 4.4 percent this year, its highest since at least 1998, before falling to 4 percent next year, the International Monetary Fund said in a report.

The decline would be most pronounced in the UAE and Qatar, the two countries contending with highest inflation rates, it said.

Inflation in the UAE, which peaked at a 19-year high of 9.3 percent in 2006, would fall to 8 percent this year and 6.4 percent in 2008 as more housing supply enters the market, according to the report.

In Qatar, where inflation hit a record 15 percent at the end of March, annual price growth would hit 12 percent this year before falling to 10 percent in 2008, the IMF said.

'Inflation is a problem but there is a view that it is a temporary problem -- as more supply comes into the market then inflationary pressures will leave,' Mohsin Khan, IMF director for Middle East and Central Asia, told Reuters in an interview.

'It's primarily domestically driven and primarily supply driven,' he said.

In the UAE, sharp increases in rents have been the main drivers of inflation, the IMF said. Dubai and Abu Dhabi, the two largest of seven emirates that make up the UAE federation, capped rent increases at an annual 7 percent this year.

'The increased supply of housing in 2007-08, together with caps on rents introduced in Dubai and Abu Dhabi, is expected to dampen the pressure on consumer prices,' the IMF said.

In Saudi Arabia, the world's largest oil exporter, inflation would hold steady at a seven-year high of 3 percent in 2007 and 2008, it said.

Real gross domestic product growth of 5.4 percent for the six Gulf states in 2007 and 2008 would be the lowest since at least 2003, according to the report.

UAE economic growth would fall to 6.6 percent in 2008 from 7.7 percent this year and 9.4 percent in 2006.

The Saudi economic growth will accelerate to 4.3 percent in 2008, compared with 4.1 percent this year while Qatar would have the highest growth at 14.2 percent in 2007 and 14.1 percent in 2008, the IMF said.

About 85 percent of the growth in Gulf countries this year came from the non-oil sector, Khan said. - Reuters