The downgrade reflected little evidence of inflationary pressures in other sectors of the economy, the bank said in its latest monthly research report.
At the start of the year, it had expected consumer prices to rise by 2.5 per cent this year.
But it forecast inflation to edge up to 3 per cent next year as the economy continues to recover.
“The downward revision is counter-intuitive against the background of sharply higher real estate prices in Dubai, which have pushed up the cost of housing in the emirate,” Khatija Haque, a senior economist at Emirates NBD, wrote in the report that was released yesterday.
“Although the housing component of the CPI [the consumer price index] has shown inflation on an annual basis since June, the average price change in the year to August is still slightly negative at 0.2 per cent.”
Housing and utility costs represent more than a third of the index, the largest component of goods and services in the basket.
Dubai, in particular, has experienced a steep rise in housing prices in recent months as a recovery in the property market has gathered momentum.
Mid-range villa prices have gained more than 40 per cent in the first nine months of the year from the same period last year, while mid-range apartment prices rose nearly 35 per cent, according to Emirates NBD.
It said rental rates had risen more modestly but remained high at 20 to 30 per cent for mid-range villas and apartments.
There were few signs of inflation in other components of the CPI, it said.
Inflation has remained relatively muted since the global financial crisis tightened the availability of credit and weakened the property markets.
Inflation was 0.7 per cent last year, Emirates NBD estimated.
In Qatar, Saudi Arabia and Oman inflation had also dipped below its forecast despite robust growth, the bank said.
Emirates NBD also upgraded its GDP forecast for the UAE this year to 4.4 per cent.
Higher than expected oil output means the economy will expand faster than its earlier projection of 3.9 per cent.
The increase has helped to offset disruptions to oil production in Libya caused by workers’ strikes.
The IMF on Tuesday raised its forecast for the UAE’s GDP growth this year to 4 per cent, up from 3.1 per cent.
Emirates NBD said business activity had also picked up in other sectors of the economy.
“PMI [purchasing managers’ index] data through the third quarter supports our view that non-oil sector growth has likely accelerated this year, in line with our forecast,” Ms Haque wrote in her report.
Emirates NBD also upgraded its GDP forecasts for Oman and Bahrain to 5 per cent and 4.2 per cent respectively.