x Abu Dhabi, UAESaturday 20 January 2018

Consumer price inflation returns

Inflation figures releasedThursday by the Ministry of Economy showed a 0.3 per cent increase in the price of a basket of consumer goods.

The cost of a basic basket of goods has once again begun to creep up, figures show.
The cost of a basic basket of goods has once again begun to creep up, figures show.

Consumer prices in the UAE are once again nudging upwards. New inflation figures releasedThursday by the Ministry of Economy showed a 0.3 per cent increase in the price of a basket of consumer goods and services between last month and the same period a year earlier. Prices rose 0.4 per cent on a month-to-month basis. The data provide fresh evidence that the downwards spiral in housing prices, which make up about 40 per cent of the consumer price index, has come to a halt. According to some estimates, property prices have fallen as much as 50 per cent in parts of the UAE from their peak last autumn, with rental prices somewhat shadowing that trend. Housing prices started to rise slightly last month on a month-to-month basis, reversing a downwards trend. "This could hint perhaps that the worst of the downward spiral in rent prices might be at an end," said Tim Fox, the chief economist at Emirates NBD. "The data does offer some encouragement that economic activity may be at least finding a floor." Despite overall inflation accelerating slightly last month, many economists still expect to see downwards pressure on prices going forward. "In the UAE, it will be a result of both the correction in the property sector along with the increased supply in housing," Monica Malik, the chief economist at EFG-Hermes, said in a recent research report. But Ms Malik ruled out a sustained downwards price spiral. "We do not forecast to see a sustained deflationary environment developing, or a deflation spiral," she said, citing the role of government spending and the UAE's flexible labour force. Last month's upwards tilt in prices follows a 0.03 per cent decline in consumer prices in June and low inflation of 3.4 per cent in the first half. This contrasts sharply with recent years, when expensive oil pushed inflation into the double digits in the UAE. "These figures really surprise me," said Eckart Woertz, an economist at the Gulf Research Centre. "Consumer prices have recovered immensely over the past year. This could be a feeble sign of an economic recovery, but the question is whether this is just a dead-cat bounce or sustainable." Even Mr Fox warned it may be "too early to call the all-clear on declining price trends, given the continued contraction in money supply growth". This week, the Central Bank said a key measure of money supply shrank for the second month running in July, indicating a slowdown in consumer spending and a possible easing in inflationary pressure. uharnischfeger@thenational.ae