Abu Dhabi and Dubai inflation fall as stronger dirham cuts price of imported foods

Inflation in Abu Dhabi and Dubai slowed in February, as the strengthening dirham reduced the cost of imported food in both emirates.

In Dubai, the inflation rate decreased by 0.2 percentage points to 4.3 per cent from 4.5 per cent in January. Abu Dhabi’s inflation rate dropped to 4.6 per cent from 5.0 per cent the month earlier.

“Food and non-alcohol beverages constitute the main component of imported inflation – so the strong dollar is reducing food import prices,” said Alp Eke, the chief economist at National Bank of Abu Dhabi.

Food prices fell by just under 1 per cent in both emirates.

The dollar has strengthened by around 20 per cent against major currencies since the middle of 2014, as the United States economy recovers and investors price in the effect of expected interest rate rises.

The dirham, which is pegged to the dollar at Dh3.67, has appreciated in tandem.

This is reducing the cost of imports, which filters through to lower prices for consumers.

Housing costs in both emirates continued to rise, with Abu Dhabi’s real estate market becoming 11 per cent more expensive year-on-year – compared to a 7.6 per cent increase in Dubai.

In both emirates, housing costs account for the largest share of household expenditure, at about 40 per cent of the inflation basket.

Analysts expect housing costs to fall over the next year in Dubai, as a significant amount of new housing comes on to the market. The outlook for Abu Dhabi will depend on the government’s yet-to-be announced spending plans.

JLL, the real estate consultancy, expects house prices in Dubai to fall by as much as 10 per cent over the course of this year.

Shortages of affordable accommodation in the emirate remain, however, with the supply of high-end accommodation outstripping that of low or medium-income housing.

High inflation, especially in housing, is eating into the living standards of the country’s expat population.

Indian workers in the construction sector are increasingly unwilling to make the move to the UAE because of high housing costs and improved opportunities at home, The National reported this week.

The consumer price index is calculated by taking an average of the price changes of a representative basket of goods, weighted so that the items that account for the largest percentage of total expenditure contribute the most to the overall inflation figure. The index measures current prices against prices one year ago.


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