UAE's inflation rate stable at 0.9% in 2011

Rate remains unchanged from previous year; lowest since the Gulf War back in 1990
UAE's inflation rate stable at 0.9% in 2011
The price of foodstuffs was a key trigger in the Arab Spring riots of 2011
By Reuters
Wed 18 Jan 2012 06:40 PM

Inflation in the UAE remained at 0.9 percent on average in 2011, unchanged from the previous year and well below analysts' forecasts, data showed on Wednesday, with the rate being the lowest since the Gulf War started in 1990.

Pressures remained benign last year although the government raised public spending, the main engine of the hydrocarbon-reliant economy, partly in response to social unrest seen in several nearby Arab countries such as Bahrain and Oman.

"Although producer prices have seen some pressure in 2011, this was not enough to push up consumer prices, particularly in the face of weak consumer demand and overcapacity in the housing sector," said Liz Martins, senior MENA economist at HSBC.

A Reuters poll in December forecast average inflation in the world's No. 4 oil exporter of 1.6 percent in 2011 and 2.4 percent this year, below its long-term average of around 4 percent.

The economy ministry expected inflation of between 1 percent and 1.5 percent in 2011.

Annual consumer price growth in the Gulf OPEC member decelerated to levels close to zero in 2011, ending the year at 0.2 percent, as its oversupplied housing market offset food price advances and credit growth remained subdued following the 2009-2010 Dubai debt crisis.

Compared to the previous month, prices edged down by 0.1 percent in December, after staying flat in November, mainly due to lower housing costs, the data from the National Bureau of Statistics also showed.

"We expected the inflation outlook to remain benign in 2011 and we continue to see a tame outlook for 2012 with weak domestic drivers of inflation and ample supply of housing limiting price increases. Externally, the supported dollar is helping to reduce any imported inflation," said Monica Malik, chief economist at EFG-Hermes in Dubai.

The UAE, which pegs its dirham to the US dollar, is desert-covered and depends on imports for much of its food needs. That makes it vulnerable to swings in global food prices and the greenback's moves against other currencies.

In December, food prices, which account for 14 percent of consumer expenses, rose 0.6 percent month-on-month. They surged by 5.9 percent on average in 2011.

Housing costs, a major inflation driver before the global crisis pierced Dubai's property bubble, fell by 0.3 percent in December after staying flat for two consecutive months, the data showed, bringing the average decrease to 2.4 percent last year.

In January, the UAE, which remained politically stable amid the regional turmoil, raised minimum pensions of former military and government employees. The measure followed a plan, announced in November, to increase wages of some state employees.

Both moves are expected to encourage consumer spending but also increase the fiscal burden in the country, which has one of the world's largest incomes per capita of nearly $48,600, according to the International Monetary Fund.

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