UAE inflation to drop by half

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INFLATION HALVED: A report by the DCCI states that inflation will drop to an average of 5% by 2012. (Getty Images)

Inflation in the UAE will drop by half over the five years as more housing comes online, according to a report by the Dubai Chamber of Commerce and Industry (DCCI) released on Sunday.

Inflation, which currently tops 9%, is expected to decline to an average of 5% during the 2008-2012 period, DCCI said, quoting figures from the International Monetary Fund (IMF).

Restraints on fiscal expenditure coupled with a surge in available accommodation are likely to contribute toward downward pressure on inflation, the report said.

The reduction of inflation would come as welcome reprieve for low- and middle-income residents in the UAE, who have been struggling to cope with the rising cost of goods and commodities in the Emirates over the last year.

However, the report's findings are in stark contrast to forecasts by many economists who believe that demand for affordable housing will continue to outstrip supply over the next few years, pushing costs up even higher.

Inflation, which hit 9.3% in the UAE at the end of 2006, is being driven by a massive surge in demand for low- and medium-cost housing to accommodate the country's rapidly expanding population.

HSBC Holdings, for example, predicts rent prices to surge into the New Year and beyond, citing Abu Dhabi as acutely susceptible to rising costs.

“Given the tightness in the market, we expect still more price and rental appreciation,” HSBC said in a report released in November.

The report also predicts GDP growth will slow down to an average of 7.7% from 2008 through 2012, from 10% over the past five years.

Among other factors, the report attributes the staggering double-digit GDP growth experienced by the Emirates to an outward economic development strategy, favourable business climate and rising oil prices.

The report expects non-oil related investments to sustain the annual growth in the Emirates between 2008 and 2012, with real domestic demand expected to remain relatively strong and investment in infrastructure and private consumption to underpin the economy.

It states that a favourable and attractive business environment will continue to attract foreign funds with investment growth in oil, real estate, tourism, transportation, and manufacturing to lead the way.

The report states that real gross domestic product (GDP) will outpace the consumer price index (CPI) during the period from 2008-2012, with the spread widening from 0.2% in 2008 to over 4% by 2012.

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Staking Your Future on Predictions?
Posted by Louie Tedesco, Dubai on Tuesday 25 December 2007 at 09:03 UAE time

We enjoy reading the constantly optimistic views on the future - "the biggest, the best, 50% growth versus last year, less inflation predicted, bigger bonus expected, salaries to rise dramatically, etcetera". Opinions are like a right foot - almost everybody has one.

The harsh reality is that poor strategic planning of infrastructure and economic policies have created a situation where Government had to raise the pay of local constituents by 70% or more in order to quell rising anger and resentment within their population. The expat community is viewed as a tool, easily replaced when broken, but satisfied citizens must remain the backbone of every society and nation.

Predicting the future with a baseless claim that inflation will drop by half is the most audacious plan yet, intended to instil hope into the minds of residents not privy to huge salary increases that by sticking it out "things will get better". Have you checked the price of eggs -or other basic staple products- lately? Do you really think the prices will go down again? In developed countries inflation is a slow, creeping process often regulated and sometimes even desired by the Government. Prices are not increased by 20-50% in one go, rather by 2-3% at a time. Pricing does not jump from 2.00 to 3.00 units of currency in a single day- the first inflationary increase would be an increment to 2.05 for example, perhaps then raised to 2.10 six months later. A local newspaper will be raising the cover price from Dh 2 to Dh 3 on January 1st. If you expect 50% more news or 50% less advertising, you'll be disappointed.

Management of simple inflationary measures predicates that a merchant would have the small coins necessary to implement such a "visionary strategy". In a country where the biggest and best coexist but receiving exact change from a merchant or paying for your petrol with a credit card remains an impossibility, the question that more and more people are asking themselves is not how long will they stay, but when they will leave.

UTTER BALDERDASH!!
Posted by RAJENDRA ANEJA, DUBAI, UAE on Monday 24 December 2007 at 12:27 UAE time

So, inflation in the UAE will drop by half over the five years as more housing comes online, according to a report by the Dubai Chamber of Commerce and Industry (DCCI) i.e. from the current 9% to 4.5%, in the next 5 years!

This is utter balderdash.

First, any such hope is bizarre, because inflation is not a pure function of housing. The global increase in prices of oil, gold, cereals, raw materials etc., will also impact inflation. The Gulf countries should realise that they do not run, isolated, insulated economies any more. They will have to accept that they may have to deal with inflations of 5 to 8% per annum now onwards. Gulf countries will also have to be mature and manage their own fiscal and monetary economies, instead of just pegging their currencies the US dollar, and hoping that the momentum of the USA economies ship will steer them to economic prosperity.

Secondly, even if the pious prediction, that inflation will half to 4.5 % in the next 5 years is correct, then, to those who are hit/crippled by inflaton today, it is tantamount to telling a thirsty man, we know your are dying of thirst, but we will give you only a glass of water, every year, over the next 5 years.

What is required is a multi-functional committee, composed of Government, public and private sectors, to deliberate and action immediately, how to control the menace of inflation, immediately. It would be a serious mistake to ignore the Frankenstein of inflation.

UAE Inflation
Posted by R S, Dubai, UAE on Monday 24 December 2007 at 07:28 UAE time

Please note that a decline in inflation to 5% does not mean decrease in cost of living by half as claimed in your report (paragraph reproduced below). It merely means that the quantum of increase in cost of living will not be as much as it is when the inflation hovers around 9%.
" A halving in the cost of living would come as welcome reprieve for low- and middle-income residents in the UAE, who have been struggling to cope with the rising cost of goods and commodities in the Emirates over the last year."

Editor's reply: Kindly see our earlier reply.

Inflation to halve in Dubai according to Dubai Chamber of Commerce
Posted by Anand, Dubai, UAE on Sunday 23 December 2007 at 16:15 UAE time

This article is striking in many ways. Firstly, inflation is stated as +9% which is highly debatable and has already been debunked by many leading experts. Secondly, the expected increase in housing supply is not going to be in the low and middle income categories; the burden to people of low- & middle-incomes will not be lessened by this! "Halving in the cost of living....".. is this a sponsored article or advertisement by the DCCI? Thirdly, with oil prices showing no sign of abatement, rather steep increases are being expected; inflation is likely to increase - as has been predicted by many leading experts in the field. I seriously wonder what political motive may be behind such reporting. Just adding contrary views in the article does not increase its merit; that can be achieved only by sound analysis. (Incidentally, GDP is gross domestic product, and not 'growth' domestic product as has been unfortunately written).

Editors' reply: The report stated the findings of the Dubai Chamber of Commerce, the official commercial body of the emirate. However, the report also noted that: "the report's findings are in stark contrast to forecasts by many economists who believe that demand for affordable housing will continue to outstrip supply over the next few years, pushing costs up even higher... HSBC Holdings, for example, predicts rent prices to surge into the New Year and beyond, citing Abu Dhabi as acutely susceptible to rising costs."

You have a point about the unfortunate statement "halving the cost of living". The reporter erred on the side of simplification, which we agree was not only misleading, but wrong.

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