The UAE will witness deflation in 2009 as rentals, the largest component of the consumer price basket, fall across the country, EFG-Hermes forecast on Saturday in the first research to suggest inflation will turn negative this year.
The Egyptian investment bank estimated in a report the consumer price index (CPI) will fall by 2 percent, compared to an estimated rise of more than 12 percent in 2008. UAE inflation stood at 11.1 percent in 2007, according to official figures.
Inflation has soared in the UAE over the last few years as the country's economic boom drew more and more expatriate workers and drove prices, particularly property and rental prices, ever higher.
However, the global financial crisis has hit the UAE, and especially Dubai, hard. Demand for property has dried up and economic growth has slowed.
EFG-Hermes said the fall in inflation will be driven by rentals, which it expects will drop 20-50 percent in Dubai as job losses mount.
The bank estimated the UAE population will decline 5.5 percent in 2009, led by Dubai where the population is expected to contract 17 percent as companies cut back amid the financial crisis.
EFG-Hermes said other drivers of inflation such as food and imported inflation have also eased, but forecast imported inflation will increase in the second half of 2009 with an expected weakening in the U.S. dollar.
Standard Chartered forecast last week inflation in the UAE will rise 2.5 percent in 2009.