x Abu Dhabi, UAEThursday 27 July 2017

Rising prices ahead of Ramadan feed inflation

Religious period traditionally sees rising food demand

Ramadan is expected to push up food prices, increasing inflationary pressures across the GCC in the coming months. The increases in consumer prices in Saudi Arabia, Oman and the UAE have touched annual highs in recent months. "Ramadan is a month when food demand goes up, exacerbating the problem," said Jarmo Kotilaine, the chief economist at NCB Capital.

Despite government efforts to control prices, the cost of food can increase during Ramadan as demand surges for staples such as rice, bread and sugar. In the UAE, the Ministry of Economy is expected to start a campaign ahead of Ramadan next month to try to control the prices of commodities. Qatar last week announced plans to cap the prices of about 160 basic food and non-food items from July 25. Increases in the cost of basic food items have already contributed to a return of inflationary pressures this year.

The prices of sugar and rice increased by between 15 per cent and 20 per cent in the first quarter compared with the same period last year. Saudi inflation accelerated to a 13-month peak last month, powered by food and housing costs. The kingdom's inflation rate increased to 5.5 per cent last month from 5.4 per cent in May, the central department of statistics said yesterday. In Oman, inflation climbed to a one-year high of 3.2 per cent in May from 3.1 per cent in April, the ministry of economy said last week. The UAE's annual inflation rate accelerated slightly in May to 0.9 per cent. The increase was driven by a 5 per cent annualised rise in food costs.

But economists are ruling out a return of the record inflation rates seen in the GCC before the financial crisis. Economists expect 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. At the height of inflation in the UAE in 2008, the Government struck a deal with several major retailers, including Carrefour and LuLu, to cap prices until the end of the year at 2007 levels.