x Abu Dhabi, UAEFriday 28 July 2017

Inflation rate rise is no cause for panic

While cautious oversight is needed, the rise in the UAE's inflation rate is largely a sign of growth.

Consumer prices in the UAE have held fairly steady since the global economic crash in 2008 and inflation rates have been low, in line with the global situation.

As The National reported yesterday, the latest figures released by the National Bureau of Statistics and the Statistics Centre-Abu Dhabi show that the annual inflation rate is 1.3 per cent nationally, and 1.6 per cent in the capital, driven up by increases in the prices of beverages, education and clothes.

The official figures show that housing costs in the capital rose 0.6 per cent year-on-year in October, but recent hikes in rental prices – 5 per cent in many cases but as much as 30 per cent for some mid-range villas and apartments – are not fully reflected in the data. Tobacco and alcohol prices gained 8.5 per cent during the same period last year, while education costs were up 3.9 per cent.

Although UAE respondents to the Global Salary Survey conducted recently by human-resources firm Aon Hewitt said they expected pay increases of about 5 per cent over the next year, the reality is that many people will not receive a rise. Clearly, salaries are not keeping pace with the cost of living, and that is not sustainable in the long-term. The unpalatable flip side to that, at least for employees, is that lack of wage increases may also be helping to keep inflation at bay.

However, as the economy continues its recovery from the global crisis, fluctuating inflation rates are to be expected. Small increases should be welcome, because they indicate a healthier, growing economy. Any dramatic rises in consumer-goods prices should ring alarm bells because of the negative effect they will have, especially on low-income households.

While it is understandable that some people are concerned about the increasing cost of living – especially with housing and education costs outpacing general inflation – there is no need to push the panic button.

The fact that wages remain steady should help keep a lid on the prices of essential items. There is no doubt that the authorities are keeping a close eye on the trends. Their ability to manage inflation via monetary policy is limited due to the currency peg, but other tools are available to them. For the moment, the appropriate approach is to exercise caution.