Business | Oil & Gas

Inflation pressures in UAE likely as cost of fuel rises

Another increase in rates will give traders an excuse to hike the prices of goods and services, economist says

  • By Himendra Mohan Kumar, Staff Reporter
  • Published: 00:00 August 23, 2010
  • Gulf News

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Abu Dhabi: A likely increase in fuel prices within the next few weeks will exert greater inflationary pressures on the UAE economy as producers and suppliers will pass on the increase in transportation costs to the consumers, experts cautioned Sunday.

Inflation in the UAE eased for the first time in five months as the cost of housing remained unchanged and food prices rose at a slower pace.

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The inflation rate declined to 0.9 per cent in July from 1 per cent a month earlier, the National Bureau of Statistics said recently.

Sources at the Abu Dhabi National Oil Company (Adnoc) told Gulf News on Saturday that oil distribution companies are about to increase fuel costs "a few weeks after Eid holiday." The increase will be 20 fils per litre.

This means that the cost of Special fuel will increase from Dh1.72 to Dh1.92 per litre. The price of E-plus will increase from Dh1.61 a litre to Dh1.81 a litre.

Any increase in petrol prices would mean it would be the third time this year that pump prices have been raised.

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Diesel prices are also set to rise from Dh2.35 to Dh2.55 per litre.

"Oil companies are losing big bucks on fuel subsidies. This may be a move to prop up the state oil companies which can't afford to keep bleeding money," Kate Dourian, Middle east Editor of Platts told Gulf News by telephone.

"However, the timing for this move seems to be a bit strange as the (global) crude prices are coming down at the moment," Dourian added.

Abdul Hamid Radwen, an economist said yet another increase in fuel prices will give traders an excuse to jack up the prices of goods and services, disproportionate to the increase in fuel costs.

"An increase in fuel prices is going to benefit the government's balance sheet but would mean an additional burden on the residents of the UAE.

It will affect all segments of the economy and lead to higher inflation," said a market analyst, who didn't want to be identified. In July, the UAE had announced up to 14.2 per cent increase in petrol prices with the aim to gradually align domestic fuel prices with the market.

Analysts at the time felt the move would help cut losses of oil retailers and curb wasteful fuel consumption.

The UAE's oil marketing companies have been trying to mitigate accumulated and growing losses due to continuous surge in cost of the product and because of selling them well below their cost.

Do you think the price increase is justified? How will this impact consumer prices and inflation? How will this affect you?

Comments (12)

  1. Added 13:35 August 23, 2010

    I do support the increase , there are many benifets gained by this: Reduced traffic Cleaner air in Dubai Extra income to UAE nationals Away of taxing , but good one use of public transport wiser user of family cars safer roads with less cars in roads & less drivers safer petrole stations with less visits Healthy economics for Fuel Retailers International appreciation via Energy convervations Respect of USA, Eurepean , Asain counteris government Many others ... call me " The Energy Expert "

    KHD Mohammad, Sharjah, United Arab Emirates

  2. Added 11:47 August 23, 2010

    How can you justify, there is no salary increase in last 3yrs, at this time of recession fuel price going down, how can you increase it for 3rd time. Do you want us to go on the road and pick a protest like they do it in Asian countries. The cost of feeding top directors and mangements are increasing, cut down those expenses. The hike doesnt improve any services or quality. Have you not got any other way to make money, look at Saudi and Libya...they dont hike the price every now and then.

    Anonymous, dubai, United Arab Emirates

  3. Added 11:40 August 23, 2010

    I think that the solution to the higher cost of fuel prodcution is because UAE does not have refineries. If UAE sets up refineries (which it has the ability to do so), then fuel will be cheaper than water as in KSA. However, with the current scenario, on one hand home rentals have gone down but inflation is going up, therefore, the common man is still facing the miseries of meeting the basics of life.

    Anonymous, Dubai, United Arab Emirates

  4. Added 11:37 August 23, 2010

    This is absolutely another burden to all UAE residents. The idea of changing measurement from gallon to litre was the smartest move done by the concerned authorities. Hike in prices of petrol products before was not too bad as it was measured per gallon. Now we are talking about per litre which is resulting into huge amount when it comes to price hike. Subsequent increase in petrol prices is definitely considered as another crisis.

    Jenny, Dubai, United Arab Emirates

  5. Added 11:16 August 23, 2010

    Very Surprising! Within 3 months, 3times oil price hike is not affordable! Never ever seen this!

    Anonymous, Dubai, United Arab Emirates

  6. Added 10:42 August 23, 2010

    The analyst is right, it is pretty suprising to note that changes are being effected at a time when global price of fuel is falling. With the cash taken home by employees in UAE being unchanged or lower over the past 2 years due to growth concerns, this near double increase over the year, will only make situations for those in the middle income to lower brackets worse. The rise in price of food and other necessities will rise not cause of their demand but because of production costs being naturally charged to the consumers. It would be a blessing if the decission makers take into account the plight of the common man.

    Thomas, Dubai, United Arab Emirates

  7. Added 09:53 August 23, 2010

    The analyst is right, it is pretty suprising to note that changes are being effected at a time when global price of fuel is falling. With the cash taken home by employees in UAE being unchanged or lower over the past 2 years, this near double increase over the year, will only make situations for those in the middle income to lower brackets worse. The rise in price of food and other necessities will rise not cause of their demand but because of production costs being naturally charged to the consumers. It would be a blessing if the decission makers take into account the plight of the common man and not alienate their concerns.

    Thomas, Dubai, United Arab Emirates

  8. Added 09:20 August 23, 2010

    it is not going to benefit environment, it not even going to reduce the loss of the retailers. but it only going to be burdan on the resident. no body is wasting the fuel, do u all think that people who are wasting the fuel (if any) will stop wasting the fuel with a price raise of 20 fils per liter. it is only going to make things costlier, your groceries, school transport, office transport, etc. its mearly a show, these retailer will bring the price of a liter of fuel in compare to gallon (previously).

    Anonymous, abu dhabi, United Arab Emirates

  9. Added 09:08 August 23, 2010

    within 3 months 3times oil price hike is not affordable for middle class families.this is toomuch...now not like before price hike is against litre not against gallon so if u make full tank your car alternative days u r getting minimum 15-20dhs hike peoples sallary still going down or as it is no hike in sallary , after ramadan i think food items also hike the price accordingly........

    Mohammad aslam, dubai, United Arab Emirates

  10. Added 09:01 August 23, 2010

    Its really strange to see the price increase, if we plan to use public transport, it frequency, connectivity to destination & timing will big problem, with people stressed out because of loans, pay cut, no increase in salary. This is additional burden, surely price of grocery and other essential price will increase and it will create a hole in the pocket which is already bearing it.

    Anonymous, Dubai, United Arab Emirates

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