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UAE inflation unlikely to be tamed as import costs rise
Residents of the UAE are unlikely to get a respite from high consumer prices as imports grow increasingly expensive and a shortage of housing continues to push rents upward.
- By Shakir Husain, Staff Reporter
- Published: 23:33 June 27, 2007
Dubai: Residents of the UAE are unlikely to get a respite from high consumer prices as imports grow increasingly expensive and a shortage of housing continues to push rents upward.
Manufacturers and suppliers in various sectors, ranging from food to petroleum, want to raise prices of goods and services.
The Ministry of Economy this week agreed to a 20 per cent rise in the price of rice, half of what importers want due to high prices in top rice producing countries India and Pakistan.
The price of diesel rose last week by up to 40 fils at local filling stations.
The ministry has tried to contain inflation by imposing ceilings on price hikes but those measures have failed to prove effective. "Price controls can only be a short-term measure. In the end, you have to look to the market to set prices," said Simon Williams, an economist with HSBC in Dubai.
"There are pressures on imported food as commodity prices are picking up globally. You can see these pressures playing out across the Gulf," he said.
Delays
Delays in Dubai property projects raised the average rent for apartments by as much as 18 per cent in the first quarter, property services firm Asteco said.
It said only 14,000 housing units came onto Dubai's market last year, 26,000 less than expected.
HSBC put inflation in the UAE at 10.5 per cent in 2006, while investment bank EFG Hermes estimated it at 7.7 per cent to 10 per cent.
The Ministry of Economy said inflation was 9.3 per cent last year, with the fuel price rise of 31.5 per cent in 2005 and rents rising by an average 15.3 per cent.
The International Monetary Fund estimates inflation in the UAE to be much higher.
The dirham's peg with the US dollar, which is falling in value against major currencies, is also contributing to imported inflation.
"Interest rates should be higher because there liquidity is high the region. But they remain lower than required because the UAE monetary policy is tied to the US Federal Reserve," said Monica Malik, senior economist with EFG Hermes.
High growth rate leads to price pressures
Simon Williams, an economist with HSBC in Dubai, said UAE inflation is primarily driven by the very rapid pace of economic growth.
"UAE GDP has more than doubled in the past four years and trebled in the last eight. You don't grow that fast for that long without experiencing price pressures," he added.
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