More than half of consumers in Dubai are worried about the rising cost of living as optimism about a strengthening economy is tempered by concerns over inflation.
The anxieties are captured in the latest consumer confidence survey conducted by the Dubai Department of Economic Development (DED) in the first quarter of the year.
It showed a 16 percentage-point jump in consumer optimism about the economy, from 74 per cent in the fourth quarter of last year to 90 per cent in the first quarter of this year.
Vibrant tourism and property markets were cited by respondents as reasons for their growing confidence. But the data also revealed concerns about the flip side of the improving economy.
Rising living costs were a worry for 54 per cent of respondents, it said. No comparative figure about living cost concerns were provided for the first or fourth quarter of last year.
Almost a third of respondents, 31 per cent, said they were looking to cut back on outdoor expenses to save costs. Cutting down on utility charges and telephone bills as well as delays in technology upgrades, such as phones and computers and home refurbishments were also given as ways consumers intended to save money.
"People have memories of 2006 to 2008 and the rising cost of living during the boom years," said Simon Williams, the chief economist of the Middle East and North Africa at HSBC. "We have been working through spare capacity in the housing and labour market and that's kept a cap on inflation until now. But we are looking at a tightening in the housing market, which means there will be a pickup in the overall cost of living."
Dubai's economy is forecast to expand by more than 4 per cent this year, according to official data, as its pillars of trade, transport and tourism revive. The property sector is also recovering as prices rebound and stalled projects resume after the 2009 downturn.
But signs are already pointing towards an increase in inflationary pressures, mainly led by property price rises.
The consumer price index in Dubai crept up 0.6 per cent last month from March 2012, data from Dubai Statistics showed last week. But the data showed the housing and utility category of the index, which has the largest weighting in the index, is no longer a drag on the basket. Prices of the component nudged 0.2 per cent higher over the same period.
HSBC expects inflation to reach 1.6 per cent this year, up from 1.2 per cent from last year. Prices would then accelerate to 3.5 per cent next year, the bank forecasts.
The rise is still short of inflation of 11.1 per cent during 2007, when an abundance of cheap credit helped to fan price rises. A more limited flow of credit now would help to moderate price rises in the immediate future, said Mr Williams.
The Dubai DED consumer survey also showed respondents were banking on a further uptick in the economy this year. The number of those believing its performance would strengthen jumped from 89 per cent to 95 per cent from the fourth quarter of last year to the first quarter of this year. The overall index held steady at 135 points between the two periods.
"The prevailing consumer sentiment in Dubai shows an increasing level of confidence in the emirate's ability to stimulate economic activity, create jobs and generate wealth," said Sami Al Qamzi, the director general of DED.
A total of 87 per cent of respondents said they expected to see better job prospects this year, with 82 per cent rating current labour market prospects as good or excellent, up from 71 per cent in the previous quarter.
The results are based on a survey every quarter of 2,000 people, both locals and expatriates.