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Mon 28 Feb 2011 10:15 AM

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UAE January inflation edges lower, food costs drop

Food costs drop 0.8 percent month-on-month, housing costs down as property sector remains weak

UAE January inflation edges lower, food costs drop
INFLATION WOES: Record high global food prices are one of the main factors seen fuelling inflation in the Gulf (Getty Images)

Inflation in the UAE fell to 1.6 percent on an annual basis in January and an unexpected drop in food costs helped to push consumer prices into a second monthly decline in a row, data showed

Consumer price growth in the world's third largest oil exporter hovered close to one percent for most of 2010 as debt woes of Dubai state-owned companies dented banks' lending appetite and a once-booming property sector remained weak.

Inflation was 1.7 percent in December, above 0.9 percent for the full year of 2010, which was the lowest annual level since the Gulf war started in 1990.

In January, living costs in the OPEC member economy fell by 0.3 percent month-on-month, the same decline as in the previous month, data from the National Bureau of Statistics showed.

"It [the food price fall] is somewhat surprising," said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi. "Also because Abu Dhabi food inflation category went up."

Record high global food prices, which helped spur a popular revolt that has gripped much of the Arab world, are one of the main factors seen fuelling inflation in the Gulf, the world's top oil exporting region, this year.

Food costs, which account for fourteen percent of the UAE basket, dropped by 0.8 percent in January after a 1.6 percent fall in the previous month, mainly due to a seasonal decrease in vegetable, fish and fruit prices, the statistics office said.

Food price developments also differed across seven emirates that make up the UAE, the second largest Arab economy after Saudi Arabia.

Housing prices, the largest consumer expense at over 39 percent of the basket, fell by 0.5 percent in January as new units came to the property market. Transport costs were flat on the month, the data showed.

Analysts expect inflationary pressures in the UAE, that has been spared of public anti-government protests unlike Libya and Bahrain, to increase this year, but not to worrying levels.

"There is a recovery underway and with import costs rising, I expect to see some pick-up in inflation later in the year," said Simon Williams, chief economist at HSBC Bank in Dubai.

"But gains will be at the margins. Economic activity is still too weak, the labour market too loose, and real estate market too soft to carry a more significant rise in prices."

Economy Minister Sultan bin Saeed Al Mansouri said earlier this month that food inflation was a very small concern for the country - which imports most of its food needs - and inflation should remain at around two percent this year.

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