Pace of UAE Price Decline Eases

The pace of decline in UAE consumer prices eased a bit in the month of January, thanks to a spike in property rents, energy and medical bills, but inflation was kept in check in the Arab world’s second largest economy because of broadly stable food prices and lower transport and communication cost, official data showed on Thursday. The rate of consumer price growth, or inflation, has sharply declined across the board since its peak in 2008 as the global financial crisis and economic downturn crimped overall aggregate demand for goods and services, a situation termed as “deflation” by economists. Data issued by the National Bureau of Statistics showed the UAE’s Consumer Price Index (CPI), a broad measure of inflation, falling in January by a marginal 0.06 per cent in January from December when CPI had slipped 0.71 per wcent. On a year-on-year basis CPI showed a 0.32 per cent decline in January, after a decrease of 0.42 per cent in the same month of 2008. “We expect inflation to return to positive territory from the second quarter of 2010, although housing prices will remain weak and are likely to see further falls,” said Monica Malik, chief economist at EFG-Hermes.

“The main inflationary drivers would be external factors such as food prices,” she said. The data showed that deflationary pressure was concentrated in the UAE’s largest emirates, with CPI falling 0.07 per cent in Abu Dhabi and 0.05 per cent in Dubai in January. The index showed consumer prices gathering pace in all the other five emirates, with Ajman posting the highest rise of 2.76 per cent and Umm Al Quwain recording the lowest rise of 0.16 per cent. The bureau said that prices in the main household category, which accounts for 39 percent of the consumer inflation basket and includes rents and energy costs, rose 0.42 percent month-on-month in January due to increases in rents and fuel costs. Prices of furniture and household goods went up by 0.83 per cent, while the medical care bill was up by 0.54 per cent. Food prices rose by a feeble 0.05 percent in January from the previous month, and transport prices eased 0.09 per cent. Communication prices dipped 4.08 per cent in January, while prices in the restaurants, cafes, and hotel sectors came down by 0.18 per cent. The prices of recreational, cultural goods and services rose 0.22 per cent, prices of beverages and tobacco went up by 0.20 per cent, and food and soft drinks by 0.05 per cent, the Bureau said.