UAE inflation falls to 1.9 pct in April

Jun 03, 2009 at 09:00

UPDATE 1: Gulf state's first monthly data shows inflation averaged 4.94 pct in first 4-months of 2009.

Annual inflation in the United Arab Emirates 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. Annual 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.

DATA IMPROVEMENTS

Food and beverage prices, comprising 13.9 percent of the index, also dropped off quickly, rising 2.6 percent in the year to April compared with a fourth-quarter surge of 17.3 percent.

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.

Meanwhile, central bank data on Wednesday showed M3 money supply growth, an indicator of future inflation, fell to a more than four-year low of 19.9 percent in the first quarter.

The UAE and other states in the oil-exporting Gulf have often come under fire for a lack of timely economic indicators.

Gulf governments are attempting to improve the quality of indicators as they prepare for a regional single currency plan that the UAE unexpectedly 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 had already done so.