x Abu Dhabi, UAEFriday 28 July 2017

Price caps on food have limited effect

That sharp increase in the price of some groceries can be blamed in part on price controls for certain other foodstuffs.

When an unstoppable force crashes into an immovable object, the price of meat goes up. That's the lesson decisionmakers - including the one who makes your household's dinner policy - can draw from yesterday's news on rising food prices in the capital.

The figures, published by the Statistics Centre Abu Dhabi, will merely confirm what anyone who shops regularly for groceries has seen this year: while food prices across the board were a little higher in January and February than a year ago, prices for meat are up a sharp 12.3 per cent, and coffee, tea and cocoa climbed 8.4 per cent.

The unstoppable force behind this bad news is the global law of supply and demand. The immovable object is the food-price control policy that keeps the cost of 400 basic food and food-related products in the UAE stable and relatively low.

So in this country, retail prices do not budge even when wholesale costs climb. This is not magic: grocers, who are in business to earn a profit, make up the loss by boosting prices on those meat products and processed foods that are not included in the price-control policy.

In practice, then, price controls transfer some wealth from those who buy lamb chops to those who can afford little more than lentils and rice.

Supply-and-demand often works for ordinary people. Many of us take our groceries home to housing that costs less than it used to, because oversupply has depressed prices. And despite the market distortion caused by controls, the UAE's National Bureau of Statistics says food prices in January actually declined a little nationwide from the previous month. Supply-and-demand works both ways.

Overall, these are not inflationary times in the UAE. Abu Dhabi's consumer price index was a mere 0.7 per cent higher last month than a year previously. Statistics agencies calculate "the CPI" based on a basket of "typical" goods and services. Your own CPI change depends on what you buy: the biggest single factor in that 0.7 per cent rise, for example, was "restaurants and hotels" -stay out of them, and life gets cheaper.

Food-price changes cause more anxiety than many other economic indicators, but it is helpful to keep some perspective. Much of the world envies the UAE its stable supply, rich variety of choice, and moderate prices.