Inflation lightens up a little in the UAE

Published October 21st, 2015 - 08:18 GMT

Inflation in the UAE eased to 4.29 per cent year-on-year in September from 4.94 per cent a month ago, reflecting lowering petrol prices.

The National Bureau of Statistics, in its monthly bulletin, said the Consumer Price Index increased 4.29 per cent year-on-year. The overall CPI reached 127.58 in September 2015; it rose 0.31 per cent compared to its value at the end of August.

The decline was chiefly driven by the cost of transportation, which contributed a fall of 4.4 per cent in September as a result of the recent withdrawal of fuel subsidies by the government.

On August 28, diesel price was readjusted 18.5 per cent and the price for a litre of petrol was cut 8.5 per cent, in line with average prices on the international market.

In September, education expenses rose 3.3 per cent; textile, clothing and footwear rose 3.11 per cent; and food and drinks went up 2.33 per cent.

"In terms of relative contribution housing and utilities contributed the most 3.27 per cent year-on-year as nearly 75 per cent of the inflation originates from housing/utilities," said Alp Eke, senior economist at National Bank of Abu Dhabi.

The CPI has 12 categories and depending on household spending surveys the weights are determined. "For the average UAE household, spending on transportation is 11 per cent of the budget. It is not only the petrol price that we pay at the pump but it is included in food, it is included in almost every category in small proportions especially food. As food items need to be shipped by road," he said.

He said the average UAE household spends at least 20 per cent on petrol and related categories.

Housing and utilities' contribution will decrease, he said: "In our opinion, during the fourth quarter of 2015, the inflation rate should be mainly driven by housing/utilities and transportation."

The contribution of transportation for October 2015 is expected to be a bit lower as the Ministry of Energy has reduced gasoline prices by around 8.5 per cent. Contribution of rents is declining as well.

For the last quarter of 2015, the CPI will hover around four to 4.2 per cent and average 2015 CPI will be around 4.2 per cent, up from 2.35 per cent in 2014 and 1.1 per cent in 2013.

A Credit Agricole Private Banking research report entitled "Macro Comment - Mena Update", observed that the UAE continues to witness stable economic activity despite the challenging macro environment.

By Haseeb Haider

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