Dubai's inflation nearly doubled in three months after the US-Iran conflict shut the Strait of Hormuz, but any sharp slowdown by the end of the year may not mean life will become less costly for consumers.
Headline inflation is forecast to fall from a 5.4 per cent peak this month to 2.9 per cent by December if ceasefire talks lead to the reopening of the strait. But analysts say lower inflation could reflect weaker demand in Dubai’s tourism, retail and hospitality sectors, as well as easing fuel and freight costs.
Even if a ceasefire is reached, which seems unlikely in the short term given the US attacks on Southern Iran on Monday, easing is unlikely to be felt evenly across the economy, with fuel, freight and transport costs expected to correct faster than food and rent, while households remain cautious after months of rising grocery bills.
Yet, this all depends on the Strait of Hormuz, and Dubai will experience elevated inflation pressures as long as its core trade routes are disrupted, said Ryan Bohl, Senior Middle East and North Africa Analyst at RANE.
“While these inflationary pressures are directly related to the Hormuz disruption, as we've seen with previous inflationary shocks, even once the initial shock has passed, there's a period of adjustment rather than rapid decline.
Yet, a faster fall in inflation could reflect weaker demand rather than only easing supply pressures, particularly in a tourism-heavy economy such as Dubai. And it's “more likely to cause an inflationary decline at the potential of demand, which would cause prices to decline to try to meet cratering demand”, he added.
Sandeep Ganediwalla, regional partner at Redseer, added that the April inflation reading and expected peak suggest price pressures are no longer short-term, nor evenly distributed.
“If the Strait of Hormuz normalises, headline inflation should ease in the coming months, but we expect the impact to be different across sectors,” he said. “For example, fuel and freight-linked costs can correct faster. Food and rent usually take longer to adjust.”
The sectors most exposed include grocery, logistics, delivery, ride-hailing, restaurants and construction-linked categories, where fuel, freight and input costs flow through more directly, he said. Discretionary retail, including fashion, electronics and home, is more mixed, as companies may absorb some pressure before passing it on and consumer demand can be more sensitive to price changes.
Mr Ganediwalla said consumers are “defensive but not panicked”.
“In our recent UAE consumer work, 78 per cent of respondents said grocery prices had increased, and 51 per cent cited food inflation as their top concern,” he said. “The response is more reprioritisation than retreat: more focus on essentials, some stockpiling, and more selective discretionary spending.”
“If the situation normalises, sentiment may improve before prices fully ease. Consumers react quickly to expectations, while CPI takes time to adjust. So, we may see confidence recover first, followed by gradual easing in felt inflation over the next quarter or two,” he said.
The acceleration marks a sharp reversal from the disinflation trend that was under way at the start of the year. Dubai Statistics Centre data shows headline inflation hit 4.8 per cent year-on-year in April, up from 3.8 per cent in March, having been as low as 2.7 per cent before the war. Prices rose 1.3 per cent in April and 0.9 per cent on the month in March, after a 0.1 per cent dip in February.
“Headline price pressures in Dubai accelerated sharply in March and April as the continuing US-Iran conflict pushed up fuel, transport and imported food costs, while PMI surveys indicate that firms are passing these higher input costs on via higher selling prices,” Jeanne Walters, senior economist at Emirates NBD, said.
UAE fuel prices have been rising since the outbreak of the Iran war on February 28, in line with global oil prices, which surged sharply on supply disruptions due to the closure of the Strait of Hormuz.
Authorities in the Emirates increased petrol prices for the months of March, April and May, while diesel prices remained unchanged for May after rising for two months in a row. The UAE's petrol prices are linked with global crude oil benchmarks.
Transport-driven inflation
In line with the sharp rise in oil prices since late February, the transport component of the CPI (consumer price index) basket rose 2.3 per cent month on month in March and a further 9.2 per cent in April, according to Emirates NBD.
However, transport-driven inflation is forecast to ease in the second half of the year as oil prices moderate following the potential easing of supply disruptions, Ms Walters added.
There is an expectation that the strait, through which more than 20 per cent of global oil and liquefied natural gas supply flows, will be reopened as US-Iran talks to end the Iran war accelerate. US Secretary of State Marco Rubio said a “solid deal” is close to ending the war and reopening the strait.
Dubai’s inflation surge in April – and the expected peak in May – will be temporary and largely linked to the disruption around the Strait of Hormuz that led to higher global commodity prices and higher global inflation, said Garbis Iradian, chief economist at the US-based the Institute of International Finance.
“With shipping routes reopening and geopolitical tensions easing, we should see inflation gradually moderate through the second half of the year,” he told The National.
He however said Dubai's economy will soften this year, with weaker tourism flows, slower trade activity, and some expatriate outflows.
“That means domestic demand is not strong enough to sustain persistent price pressures, especially in discretionary sectors. Housing inflation, which was a major driver in recent years, is expected to cool as population growth slows and rental demand normalises.”
The IIF expects inflation to average 2.8 per cent in 2026 for the UAE or Dubai.
Food prices
Food and beverage prices have also risen sharply as supply chains came under pressure following the disruption in the Strait of Hormuz.
Food prices rose 5.3 per cent month on month in March, driven in part by seasonal cost pressures related to Ramadan, as well as conflict-driven transport costs, and a further 1.5 per cent in April. Higher food costs also appear to be feeding through to the restaurants and accommodation component, which rose by almost 1 per cent in April, the report said.
Housing and utilities, the largest component of the basket at 37.6 per cent, rose sharply in January, increasing 2.8 per cent month-on-month. But analysts say government policy and easing rents are acting as a brake.
“GCC economies are expected to experience imported inflation due to reliance on imports, although energy and food prices would be capped by government policies such as fuel and food allowance schemes,” said Junaid Ansari, director of investment strategy and research at Kamco Invest. In Dubai specifically, he added, a slide in rental and housing prices is expected to partially offset broader inflationary pressure.
Monthly housing cost gains have since slowed to 0.4 per cent in March and 0.3 per cent in April, but the damage from January's jump is still showing up in the annual figure, with housing inflation climbing back to around 7.4 per cent after falling to just above 5 per cent at the end of 2025, according to Emirates NBD.
Housing remains important because it is a major driver of Dubai’s consumer price index, Mr Ganediwalla said, adding that any softness in rentals can partly offset pressure from food and transport.
The Middle East conflict has tipped the region into its worst geopolitical crisis in decades, resulting in business disruptions across the region. Energy sites and civilian infrastructure have been hit by waves of Iranian drone and missile attacks, but hospitality, aviation and tourism are among the sectors worst hit.
However, despite the disruption, Gulf economies are expected to grow this year, albeit at a slower rate, the International Monetary Fund said last month. On Friday, Fitch Ratings reaffirmed the UAE’s long-term issuer default rating of AA-, with oil export revenue to offset other immediate negative impacts amid the conflict.
Other analysts also expect Dubai’s inflation to peak and then slow if conditions in the region, including maritime traffic, normalise and geopolitical tensions ease.
“As such, a complete diplomatic resolution and a reopening of the Strait of Hormuz could help reduce the upwards pressure on prices,” Hani Abuagla, senior market analyst at XTB Mena, told The National.
However, inflation is unlikely to abate rapidly as normalisation could take time, including the restoration of logistics networks and the return of oil prices to lower levels, he added. Transportation, logistics, and aviation are highly sensitive to fuel costs, which could benefit from a return to lower oil prices, he said.
