Dubai inflation hits six-year high amid sharp rise in housing and utility costs

Housing in the Dubai Marina and Jumeirah Beach Residence area of Dubai. Antonie Robertson / The National

Dubai residents are feeling the effects of rising prices.

Dubai’s consumer price index rose 4.6 per cent annually last month, the highest since 2009, amid a surge in housing and utility costs.

The Dubai Statistics Center said the consumer price index increased 0.6 per cent month-on-month. Meanwhile, housing and utility costs, which make up about 44 per cent of consumer expenses, soared 7.8 per cent year-on-year and 0.7 per cent from April, the agency said.

The cost of food and beverages, which make up 11 per cent of the price index basket, increased 1.6 per cent from May 2014 while gaining 3 per cent from the previous month.

There is some hope however, economists say, that the UAE may have already gone through the worst of the price rises this year, as retailers typically raise prices ahead of Ramadan.

"Domestic inflation in Dubai is mainly driven by rising rents," said Alp Eke, a senior economist at National Bank of Abu Dhabi. "With lower oil prices, foreign-origin inflation is expected to decline. The most recent housing sales and rental data indicates that rents are declining as well."

“In my opinion, after the artificial price increase during Ramadan, inflation will be in a declining trend,” he said. “The downtrend, which is expected in the next few months, can be attributed to the appreciation of the US dollar against other currencies, the decline in oil prices and softening of property sales prices. Similarly, with lower global food costs, the contribution of food to foreign inflation will be lower.”

Dubai joins Abu Dhabi in reporting higher inflation. The capital registered a five-year high in price increases in April, but in May CPI inflation rose just 0.2 per cent from the previous month, suggesting to economists a steadying in rental prices.

Year-on-year, the Abu Dhabi inflation figure for last month was more or less unchanged at 5.2 per cent.

Housing rents in Abu Dhabi alone rose by 12 per cent last year and another 2 per cent in the first quarter of this year despite the crude oil retreat since last June, according to data from the property broker CBRE.

The rise in school fees is also causing frustration among residents.

Dubai’s Knowledge and Human Development Authority said last week that fees at Dubai’s 117 private schools could be raised by between 2.9 and 5. per cent.

Fees are among the highest in the region. A study last year showed that fees for top British-curriculum schools in Dubai were up to US$23,100 a year, the highest in the GCC.

Dubai and Abu Dhabi are also the most expensive cities in the Middle East for expatriates, according to the most recent survey by the cost of living experts Mercer.

Abu Dhabi and Dubai are the 33rd and 23rd most-expensive cities in the world, respectively, in large part because of a steep rise in rents for expatriates.

Abu Dhabi has moved up 35 places from last year’s Cost of Living survey by Mercer. The cost of living in Dubai has also risen – the city was 67th last year.

Economists estimate that the inflation figure is between three and six months behind current developments in the property market.

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