Dubai: The UAE’s inflation has eased considerably over the past one year after it peaked at 4.9 per cent annually in August 2015.

The current annual inflation is the lowest since February 2013 and comes primarily as a result of fall in transportation costs after the government lowered fuel costs.

Utility costs, which accounts for one of the highest share of consumer expenses, increased by 2.7 per cent while education costs increased 3.8 per cent primarily after Abu Dhabi allowed school fees to be raised.

Residential real-estate prices in Dubai have continued to stabilise, with sale prices rising 0.7 per cent year on year in October 2016 and rental prices declining by 5.1 per cent year on year. Analysts expect real-estate prices to decline further in 2017, as around 30,000 units are expected to come onto the market next year.

Inflation averaged 1.7 per cent for January-August resulting in lower average inflation 1.8 per cent for the year. “Extrapolating from this, we lower our forecast for 2017 to 3 per cent from earlier forecast of 3.5 per cent prior and for 2018 to 3.5 per cent form 3.8 projected earlier. The key factors contributing to higher inflation are cost-push factors, including higher gasoline prices and water and electricity tariffs,” said Jaiparan Khurana, Soveregin Strategist, Standard Chartered Bank.

Economists expect to see a sharp yearly rise in fuel prices in the first quarter of 2017 given the low base, especially in February and March. We believe that the increase in fuel prices in March 2017 could be more than 35 per cent year on year. From the second quarter of 2017 onwards, we expect to see a moderation in fuel-related inflation as the low base effect fades, albeit still rising, said Monica Malik, Chief economist of Abu Dhabi Commercial Bank.

Other factors feeding into higher inflation in 2017 include utility price increases in Abu Dhabi and potentially a more moderate fall in rental prices in Dubai. Strong dollar is expected to keep imported inflation weak, as will further price discounting in the domestic market to maintain competitiveness.

Overall, economists have forecast the UAE’s annual average inflation rate will accelerate in the range of 2.5 per cent to 3 per cent in 2017, up from 1.7 per cent in 2016.