UAE inflation slows to 1.9% led by housing slowdown

First monthly figures show inflation fell to 1.9%, April, after 12.3% high, 2008.
UAE inflation slows to 1.9% led by housing slowdown
By Daliah Merzaban
Wed 03 Jun 2009 01:53 PM

Annual inflation in the UAE slowed to 1.9 percent in April, and prices dropped between January and April, led by a housing price slump, the UAE's first-ever monthly inflation data showed on Wednesday.

Inflation rates have decelerated quickly in the second-largest Arab economy since hitting a 20-year peak of 12.3 percent in 2008, Ministry of Economy data showed.

The ministry had up to now released inflation only one time every year.

The UAE consumer price index fell 2.7 percent between January and April, reflecting a 5 percent drop in the housing index over the period.

Housing, which includes rents and utilities, accounts for 39.3 percent of the CPI.

"This gives us a good sense that for the year as a whole you could have deflation, and it is being driven by a sharp fall in rents," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.

Between January and April, costs for transportation, communications, furniture, services and medical care also declined, the data showed.

Year-on-year inflation slowed to 1.9 percent in April, compared with 4.5 percent in March, 6.3 percent in February and 7.3 percent in January.

Rents in Dubai, home to an indoor ski slope and the world's tallest tower, doubled or more during a building boom that came to an end late last year after the financial crisis hit and oil prices dropped off peaks of almost $150 a barrel last July.

Residential real estate prices in Dubai fell an average 41 percent in the first three months of the year, according to data of property consultants Colliers.

"Rental increases have been the key driver of inflation in the UAE," said Monica Malik, regional economist at EFG-Hermes, which expects rental prices to fall between 20 and 50 percent this year compared with a rise of 21 percent in 2008.

"We had expected to see a sharp deceleration in the CPI at the beginning of the year and for the year as a whole we are forecasting that inflation will fall by 2.4 percent," she said.

Food price inflation is also dropping off quickly, the data showed.

In April, food and beverage prices - accounting for 13.9 percent of the index - rose 2.6 percent, compared with a surge of 17.3 percent in the fourth quarter.

Transportation and communications prices, which together account for 16.9 percent of the index, advanced 4.7 percent and 2.8 percent, respectively, in the year to April.

The UAE and other states in the world's biggest oil-exporting region have often come under fire for the lack of timely and detailed economic indicators.

Gulf governments are attempting to improve the quality of indicators as they prepare for a regional monetary union, including a single currency - a plan the UAE withdrew from last month.

Most of Gulf states would begin using 2007 as the base year of CPIs by this year, after conducting household spending surveys to change the weights of their consumer price baskets, the Gulf Cooperation Council said last year.

Qatar started releasing monthly inflation in March, and Saudi Arabia, Kuwait, Oman, Bahrain already do. (Reuters)

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