UAE, Qatar to see negative inflation in '09 - EFG Hermes

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INFLATION WATCH: Housing, which includes rents and utilities, accounts for 39.3% of the UAE's overall CPI.(Getty Images)

Qatar and the UAE are likely to see negative inflation this year due to falling house prices, while inflation rates will slow sharply in Saudi Arabia and Kuwait, EFG-Hermes said in a note on Thursday.

Inflationary pressures have dropped off rapidly across the oil-exporting region as crude prices fell from peaks of $147 a barrel in July 2008 and the dollar strengthened, easing import costs for states that peg their currencies to the US currency.

"The UAE and Qatar will see the greatest reversal in inflation trends," EFG-Hermes said in the research note.

But Qatar's drop in rental prices was due primarily to an increased in housing supply last year, the UAE housing market was seeing a "structural correction," the note said.

It added that a decline in population -- due to an exodus of expatriate workers as the financial crisis led to thousands of job cuts -- was also a contributing factor in both nations, the note said.

"We are forecasting the rental prices (in the UAE) will drop further in the second half of 2009, resulting in overall rental prices falling in Dubai by around 23 percent and in Abu Dhabi by five percent in 2009," EFG-Hermes said.

Housing, which includes rents and utilities, accounts for 39.3 percent of the UAE's overall consumer price index.

EFG-Hermes forecast negative inflation of 5.3 percent in the UAE in 2009, compared to 12.3 percent in 2008. It said that an estimated five percent contraction in rental prices in Dubai in 2010 would push the inflation rate back up to 1.5 percent that year.

The investment bank forecast Qatar would have negative inflation of an estimated 4.6 percent this year before resuming an upward tick to a positive rate of 2.7 percent in 2010.

Qatar inflation soared to 15.2 percent in 2008.

The bank said the decelerating pace of rental price growth in Saudi Arabia and Kuwait would slow inflation in those countries.

"The slowdown in housing costs is contributing to the disinflation, but it will nevertheless be the central reason for Saudi Arabia avoiding negative inflation in 2009," the bank said, noting that rental prices are still rising in Saudi Arabia, albeit at a slower pace. Saudi Arabia will see inflation of around 4.8 percent in 2009, EFG-Hermes predicted. This compares to 9.2 percent in 2008. (Reuters)

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READERS' COMMENTS

Negative Inflation
Posted by Chris J, Dubai, UAE on Saturday 29 August 2009 at 12:43 UAE time


How long will it be until they start to call Positive Deflation, Inflation!
Use the real words economists, or let the public continue to laugh at you. It was economists who were so busy fiddling (or playing with terminology) that they failed to see Rome (or the global banking sytem) burn!

Definition
Posted by Jebel Ali Baba, Dubai, UAE on Friday 28 August 2009 at 12:16 UAE time


Guys, there is no such thing as NEGATIVE INFLATION. It's simply called DEFLATION.

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