Dubai, Abu Dhabi inflation hit 20% in '07 - Samba

Inflation in Dubai and Abu Dhabi probably accelerated to 20 percent last year, almost double official figures that failed to account for the spending of foreign residents, Samba Financial Group said on Wednesday.

Inflation in the UAE, the second-largest Arab economy, hit an at-least 20-year high of 11.1 percent, with consumer prices in Dubai and Abu Dhabi rising 11.3 percent and 11.7 percent, respectively, Ministry of Economy data showed in June.

"In reality, consumer price growth in the two main emirates, Abu Dhabi and Dubai, seems likely to be nearer 20 percent a year," Samba, Saudi Arabia's second-largest bank by market value, said in a research note.

"Much of this reflects shortages of housing, as the delivery of new real estate fails to keep pace with population growth of some 6 percent a year," it said.

The UAE economy ministry's consumer price index does not account for spending of expatriates, who unlike UAE nationals do not benefit from widespread state subsidies, Samba said.

Expatriates make up more than 80 percent of the 4.5 million population, with migrant workers from south Asia dominating the population.

The UAE economy ministry said in June it is working with the International Monetary Fund to build a new consumer price index that better reflects price trends, and would begin releasing monthly inflation data next year.

Trying to ease rising prices, the ministry has signed deals with supermarkets across the country to fix prices of basic food items at 2007 levels. The UAE also ordered a country-wide lifting of customs duties on cement and steel in March to stabilise construction costs.

Inflation in the UAE would likely be 12.5 percent this year before easing to 10 percent next year "as US monetary policy tightens and the dollar begins to firm", Samba said.

The Gulf state pegs its currency to the weak dollar, constraining its efforts to fight inflation as it keeps interest rates low. (Reuters)