UAE inflation hits 'alarming' levels

Inflation in 2007 accelerated to 14% on back of rising fuel, food and housing costs, official data shows.
UAE inflation hits 'alarming' levels
By Dylan Bowman
Thu 29 May 2008 11:16 AM

Fears over how quickly the cost of living is accelerating in the UAE became very real on Wednesday when the Abu Dhabi Chamber of Commerce and Industry revealed inflation jumped to a record 14% last year.

The chamber said in a report, citing government estimates, that inflation had soared in 2007 on the back of rising fuel, food and housing costs, reaching a peak of 15% during the year.

The chamber described the situation as "alarming".

At 14% the UAE would be suffering from the highest level of inflation in the GCC and one of the highest in the world.

The UAE has yet to release official inflation figures for 2007. The government said inflation stood at 9.3% in 2006 and nearly 4% in 2005.

The chamber's 2007 figure is significantly higher than previous estimates, which have put 2007 inflation at between 10.9% and 11.4%.

Analysts have predicted inflation could touch 11.8% in 2008, but that could be eclipsed in light of the Abu Dhabi chamber's findings, with fuel, food and housing costs continuing to rise this year.

"Inflation has steadily risen over the past three years to reach an alarming level in 2007, when it was estimated at as high as 15%," the chamber said, quoted UAE daily Emirates Business 24/7.

"One of the root causes of this problem is the wave of hikes in petrol and diesel prices in the country, as such increases have led to higher construction costs, slashed the profit margin of the contractors and prompted house owners to raise rents sharply.

"Although the surge in rents was a major contribution to inflation in the UAE, the fuel price increases should not be ignored as they play a key part in pushing up rents to such an alarming level given their direct impact on various economic sectors, including construction and transport."

The report will undoubtedly renew calls for the UAE to ditch its currency peg to the ailing US dollar, which has been blamed for increasing the cost of imports and restricting the central bank's ability to fight inflation.

The UAE's dollar peg forces the central bank to track US monetary policy to maintain the relative attractiveness of the dirham.

The US Federal Reserve has been slashing interest rates since September to stave off recession at a time when the UAE and other Gulf states should be hiking rates to rein in inflation.

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