x Abu Dhabi, UAEFriday 21 July 2017

Inflation to reach up to 3% on rising food prices

The cost of basic foodstuffs is expected to continue to rise this year after the prices of sugar and rice increased by between 15 and 20 per cent in the first quarter.

The UN Food and Agriculture Organisation's food price index, which tracks changes in a food basket, rose by 7 per cent last month.
The UN Food and Agriculture Organisation's food price index, which tracks changes in a food basket, rose by 7 per cent last month.

The cost of basic foodstuffs is expected to continue to rise this year after the prices of sugar and rice increased by between 15 and 20 per cent in the first quarter compared with the same period last year. GCC economies are vulnerable to fluctuations in the price of products because they are heavily reliant on imported food. "As the global economy improves people earn more and they consume more so the price of food can go up," said Tudor Allin-Khan, the chief economist at HC Brokerage in Dubai. "The processing of food requires energy and the transportation of food requires energy so that too can lead to inflation coming up."

He expects UAE inflation to reach between 2 and 3 per cent this year. The UN Food and Agriculture Organisation's food price index, which tracks changes in a food basket including cereals, seeds, dairy, meat and sugar, rose by 7 per cent last month compared with May last year. However, economists say the strength of the US dollar against the euro will act as a counterbalance to rising global food prices. With five of the six GCC economies linked to the dollar through currency pegs, a stronger greenback can help moderate import costs for the region.

Nevertheless, higher prices of food and building materials such as steel are prompting upward revisions of some forecasts. tarnold@thenational.ae