Dubai: The recent spike in consumer price inflation in the UAE is expected to ease during the next few quarters as the one-off cost increase in prices is likely to ease.
“We are projecting CPI inflation to average 3.5 per cent in 2018, as compared to 2 per cent in 2017. The 12-month inflation spiked to 4.5 per cent in February due to the introduction of the VAT at 5 per cent in January of this year,” said Garbis Iradian, Chief Economist, Mena, IIF.
The month-on-month CPI inflation fell slightly in February as the impact of the VAT on price levels faded. The IIF expects residential rent declines to continue in 2018, albeit at lower pace, as job growth remains low and new housing becomes available. With the continued decline in rents associated with the downward trend in residential prices that started in mid-2014, economists expect average inflation to decline to 2.5 per cent in 2019.
IIF Analysts said the UAE can afford a more gradual pace of fiscal adjustment to reduce the impact of lower oil prices on economic growth. The fiscal adjustment in Abu Dhabi in the past three years, combined with higher oil prices will shift the consolidated fiscal balance from a deficit of 3.7 per cent of GDP in 2017 to a small surplus in 2018 and 2019. However, excluding investment income from non-oil revenues, the fiscal balance will be in a deficit of about $20 billion (Dh73.4 billion) (equivalent to 4.8 per cent of GDP in 2018).
