Inflation is forecast to increase gradually through the second half of this year in the UAE, the latest study by the Dubai Chamber of Commerce shows.
“Base effects will become visible, particularly in the second half of this year, which will help increase inflation, while recent wage increases are likely to support domestic demand further, putting rising pressure on prices,” the Chamber’s study said.
However, the report said a downward trend in international food prices and the expectation of a stronger US dollar for the next 12 months are expected to diminish pressure on prices.
The International Monetary Fund, or IMF, in its recent projection said inflation, which remained low in the UAE at 0.9 per cent in 2011, mainly due to a continuing decline in housing rents, and price pressures are expected to remain subdued this year.
Analysts expect overall inflation to remain contained in the GCC region. While the UAE is expected to record around 2.4 per cent surge in inflation, it is expected to be marginally higher in Kuwait and Saudi Arabia, at 4.3 per cent and at 5.0 per cent, due to the faster and more widespread wage and salary increases, which has triggered substantial increase in food prices and rents. Bahrain and Qatar forecast to record 2012 rates of 3.3 per cent and 2.1 per cent respectively.
The Dubai Chamber study pointed out that with growth in bank credit and broad money still recovering, it is not expected that monetary authorities would take any policy action. “In fact, according to Central Bank officials, inflation is not a worry in the UAE since the sources of inflation are under control,” the study states.
Inflation in the UAE touched a nine-month high of 0.8 per cent in April on an annual basis and prices rose by 0.1 per cent on the month, according to the National Bureau of Statistics.
Analysts expected prices in the UAE, one of the world’s top five oil exporters, to pick up gradually in 2012, but inflation should still remain in low single digits as bank lending and property market in the Gulf country remain weak. The second largest Arab economy is seen expanding by 3.1 per cent in 2012, down from an IMF estimated 4.9 per cent in 2011.
Giyas Gokkent, chief economist at the National Bank of Abu Dhabi, forecast that annual year-on-year inflation rate was expected to possibly dip into negative territory in June, then bounce back because of base effects, but essentially remain very low; less than one per cent for most of the year.
Consumer prices in Dubai fell at a 1.5 per cent annual rate in April and 0.2 per cent from March, extending deflation to a fifth straight month due to a drop in food prices, according to Dubai Statistics Centre data.
Dubai has seen prices fall by 1.4 per cent on average so far this year in its deepest period of deflation since prices jumped by record 10.8 per cent in 2008.
According to the UAE National Bureau of Statistics, in February, inflation slowed slightly to 0.6 per cent year-on-year (-0.4 per cent month-on-month), compared with 0.7 per cent (0.3 per cent) in the previous month.
Housing prices remain deflationary, subtracting 1.5 points from the overall index, while food still remains the main contributor to upward inflation, adding 1.1 percentage points to the annual headline figure.
On a month-on-month basis, housing prices fell 0.7 per cent in February 2012, while the month-on-month change in food prices also deteriorated. Core inflation in the UAE, which excludes food and housing, decreased slightly in February, to 1.9 per cent year-on-year compared with 2.1 per cent in the previous month.
UAE inflation remains the second lowest in the GCC. The GCC’s weighted average inflation stood at 3.7 per cent year-on-year in January 2012. Housing deflation in Bahrain, Qatar and the UAE continues to strain the weighted GCC consumer price inflation downward. Weighted GCC food inflation continues an upward trend, registering 4.9 per cent year-on-year in January 2012.