UAE Inflation edges up in July

Emirates Business 24-7, 26 September 2009Inflation in the UAE edged up in July but remained at one of its lowest levels following a sharp fall in rents and food prices, official figures show.The consumer price index (CPI) rose by about 0.39 per cent in July over the previous month despite a decline in seven groups making up the CPI, showed the figures by the Ministry of Economy.Inflation stood at only 0.03 per cent in June compared with the previous month while it averaged 2.96 per cent in the first seven months of 2009 compared with the same period of 2008, the figures showed.In July, there was an increase of 0.84 per cent in the food and beverage index and nearly 0.77 per cent rise in rents. There was also an increase of 1.92 per cent in home supply and 0.27 per cent in culture.The report showed there was a decline of 0.07 per cent in the liquor and tobacco index and 0.14 per cent in clothes and footwear, 1.10 per cent in health services, 0.46 per cent in transport, 0.01 per cent in communications, 0.26 per cent in restaurants and hotels, and 0.60 per cent in other groups. Education services remained unchanged during that month. Liquor and tobacco recorded the largest price rise in the first seven months of 2009, surging by 11.39 per cent. It was followed by education services, which increased by 9.27 per cent and transport services by 6.06 per cent. Only two groups in the CPI recorded a fall in the first seven months of this year, with cultural services and clothes and footwear dropping by 1.06 and 1.45 per cent respectively, according to the report.The UAE recorded its highest inflation rate of 12.3 per cent in 2008 because of a surge in local rents and food prices, higher global commodity prices, and a sharp increase in its import bill due to the weakening US dollar, to which the dirham and other Gulf currencies are pegged. Economists attributed the sharp slowdown in inflation this year to the strengthening dollar, falling prices of oil and other commodities, a correction in the local real estate sector, and waning domestic demand.In a recent study, Saudi American Bank said the UAE could have a brief period of deflation in some months this year before a recovery in domestic demand and higher import bills push the country back into price growth.Inflation rates have steadily increased over the past seven years mainly because of high rents and strong domestic demand triggered by the oil boom.From 2.9 per cent in 2002, the rate grew to 3.1 per cent in 2003, five per cent in 2003, 6.2 per cent in 2004, 9.3 per cent in 2006 and 11.1 per cent in 2007 before climbing to a record high last year.
By Nadim Kawach
© Emirates Business 24/7 2009