Dubai inflation drops thanks to low commodity prices

The consumer price index rose 4.15 per cent year-on-year, compared with a 4.38 per cent increase in October year-on-year.

Inflation in Dubai softened last month as the effects from the recent drop in oil prices filtered through to consumers, economists said on Sunday.

The consumer price index in November rose 4.15 per cent year-on-year, compared with a 4.38 per cent increase in October year-on-year, according to data released by the Dubai Statistics Centre on Sunday.

The index was flat at 121.85 in November month-on-month after rising 0.19 per cent in October.

“The slowing rise in November is attributed to less imported inflation in our view,” said Dima Jardaneh, a senior economist at the investment bank EFG Hermes.

“This in part is because of lower commodity prices as well the appreciation of the US dollar, which in turn render UAE imports in other currencies cheaper.

“For the UAE as a whole we estimate inflation at 2.8 per cent average for this year; we expect inflation to soften in 2015 mainly as a result of the rise in the US dollar.”

Brent crude dropped by about 18 per cent last month, and so far this year it has shed about 45 per cent of its value to less than $65 a barrel. The slide to five-year lows has been caused by worries over slowing growth in Asia and Europe and a supply glut.

The drop accelerated after Opec decided on November 27 to roll over its production quota at 30 million barrels per day despite the oil oversupply to protect its market share.

Both Opec, which pumps about a third of the world’s oil, and the International Energy Agency, the adviser to 27 industrialised nations on energy policy, last week lowered their outlook for oil demand next year.

But Ms Jardaneh did not expect the drop in oil prices to significantly affect inflation next year.

“Since the price of fuel paid by consumers is subsidised, we do not expect a large impact of the lower oil prices on the CPI generally. One channel by which the oil price can impact CPI is the extent it passes through to the transport cost,” she said.

Her views differ from those of Alp Eke, a senior economist at National Bank of Abu Dhabi, who dismissed the effect of a stronger dollar on UAE inflation.

“The inflation is not imported. It is because of rising population, income levels, a shortage in housing and removal of housing caps. So the inflation causes are mostly internal, local macroeconomic factors,” said Mr Eke.

“If a strong dollar is to be blamed, please note that a strong dollar contributes to one or maybe two categories of CPI, mainly clothing and footwear. However, the main driver of inflation is housing and utilities. In my opinion, with the declining oil prices, the surge in inflation is going to slow down a bit [and] a 3.5 to 3.8 per cent average annual inflation in 2015 is highly possible.”

He expects the average annual inflation in Dubai this year to be 3.34 per cent.

Housing and utility costs, which account for 43.7 per cent of consumer expenses, increased 7.13 per cent year-on-year and 0.46 per cent month-on-month in November, the DSC data showed.

Food and beverage prices, which account for 11.08 per cent of the basket, edged up 1.06 per cent last month compared to the same period last year but month-on-month fell 1.49 per cent.

In October food prices grew 4.68 per cent year on year.

The rise in property values in Dubai in the third quarter eased, growing by 1 per cent, compared with a 6 per cent increase in the second quarter, according to the property consultancy Jones Lang LaSalle.

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