Cheaper food and fuel bring UAE inflation cut

Housing remains the biggest driver of rising costs.

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Annualised inflation in the UAE dipped to 3.7 per cent in October from 4.3 per cent in September, as fuel prices and food costs fell.

Housing costs remained the biggest driver of inflation, which were up 8.3 per cent against the previous year. Dubai house prices are up around 62 per cent against their lowest point in February 2011, but have been falling since June last year.

The real estate brokerage Cluttons expects house prices to fall by 3 to 5 per cent next year.

House sales have slowed dramatically during the past year, data from the Dubai Land Department shows. Transactions were down 20.5 per cent in the year to December against the previous 12-month period.

Economists pin falling Dubai house prices on the stronger dollar, a Dubai government increase in tax on house sales and weakening consumer demand from the Gulf as the low oil price hits confidence and consumer incomes.

However, the official inflation measure lags private forecasts, which show that the housing market has already started to fall. This is the result of how the inflation index is calculated. The government index includes both houses that have sold recently and houses that have not sold – while the private indexes look only at the prices implied by current sales.

Transport costs fell 4.1 per cent in October compared with the previous month, following cuts to the headline pump prices in that month.

But transport costs remain 1.6 per cent higher than before the reduction of government subsidies in August.

Ministry of Finance data indicates that government spending on subsidies has fallen dramatically compared with the previous year, amid cuts to energy subsidies in Abu Dhabi and fuel subsidies nationwide.

The government spent Dh6.1 billion on subsidies in the first half of last year, the data shows, but has spent just Dh400 million on subsidies in this year’s first half.

In the near future, “inflation will ease a little further”, said Jason Tuvey, an emerging markets economist at Capital Economics.

“Falling Dubai property prices should hopefully feed through to cheaper rents, in time,” he said. “The stronger dollar has helped to keep a lid on food prices and import prices in general, and we’ve obviously seen commodity prices fall substantially over the past year.

“And, despite the deregulation of subsidies on fuel, fuel prices have started to edge down in recent months.”

abouyamourn@thenational.ae

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