x Abu Dhabi, UAEFriday 28 July 2017

Housing soothes bite of inflation

The weakening housing market has offset a sharp increase in the cost of the average shopping basket, lowering inflation.

While overall inflation went down again in last month, food and beverage prices rose by 5 per cent. Pawan Singh / The National
While overall inflation went down again in last month, food and beverage prices rose by 5 per cent. Pawan Singh / The National

It may come as a surprise to supermarket shoppers, but inflation across the Emirates fell in April for the fourth consecutive month.

That is because the weakening housing market has offset a sharp increase in the cost of the average shopping basket.

Inflation last month was an annualised rate of 1.1 per cent, data from the National Bureau of Statistics show. The rate slowed from 1.2 per cent in March.

Helping to moderate the overall inflation rate were housing costs and water and electricity bills, which dropped 1.4 per cent on an annualised basis. Housing and utility costs are the biggest factors in the index.

But the overall inflation rate contrasts sharply with the view from the supermarket aisle, where the cost of basic foodstuffs continues to soar.

Food and beverage costs, which have the second-largest weighting in the index, increased by 5 per cent last month from the same period last year. Global food costs are near record peaks as producers hit by bad harvests struggle to meet growing demand from China, India and other emerging markets.

Global corn prices have risen 8.4 per cent, with coffee prices rising 7.7 per cent so far this year, according to Standard & Poor's GSCI Commodity Index.

An oversupply and low demand for new units is continuing to drag on the property market. Prices are estimated to have fallen by about half from their peaks before the global financial crisis.

"The story is still largely the same for the UAE," said Nancy Fahim, a Middle East and North Africa economist at Standard Chartered.

"The housing component is showing continued weakness, and our expectation is for much more supply for commercial and residential in Dubai and Abu Dhabi, which will continue to bring a rental-prices slowdown."

The property downturn contributed to a brief period of deflation in the economy between part of 2009 and February last year as prices eased.

Sultan al Mansouri, the Minister of Economy, forecast last week that inflation would rise from 1 per cent to 1.5 per cent this year.

The muted inflationary environment represents a turnaround from 2007 and 2008, when a property market boom and high credit growth pushed inflation to double-digit levels.

tarnold@thenational.ae