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Mon 25 Feb 2008 12:13 PM

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UAE inflation 11% in 2007 - NBAD

National Bank of Abu Dhabi revises forecast up by almost three percentage points on rising rents.

Inflation in the UAE probably hit 10.9% in 2007, the National Bank of Abu Dhabi (NBAD) said, revising up its forecast for price rises by almost three percentage points on rising rents.

Inflation is rising rapidly across the world's top oil-exporting region, where economies are surging on a near five-fold rise in oil prices since 2002. UAE inflation hit a 19-year peak of 9.3% in 2006, according to official data.

"Indicators continue to point to unabated inflation," NBAD said in a note on Sunday in which it raised its inflation forecast from 8.1% because of faster than anticipated rent increases.

Rents, which account for more than a third of the consumer price index of the second-largest Arab economy, jumped about 18-19% last year - accounting for 61.8% of total inflation - NBAD said.

"The main implication of this is that inflation continued to be driven by a non-exchange rate related factor," NBAD said.

Like most other states in the world's top oil-exporting region, the UAE is constrained in its fight against inflation by its dirham currency's peg to the dollar, which forces it to track US interest rate cuts.

UAE Central Bank Governor Sultan Nasser Al-Suweidi said in November he was under mounting social and economic pressure to drop the peg and adopt a basket of currencies including the euro to help tame inflation.

He has since backtracked on those remarks, saying on Monday that dollar pegs have served Gulf economies "very well" because they have helped the states attract investment.

While a revaluation of the dirham "cannot be ruled out", policymakers may not regard it as warranted since the bulk of inflation is not linked to the exchange rate, NBAD said.

Food prices account for about 14.43% of the index, and rose around 8% last year, NBAD said. (Reuters)

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