Dubai inflation rose by 5.33 per cent on an annual basis in July, lower than its peak in June, as the US-Iran war drives prices of fuel, transport and imported food higher.
The consumer price increase last month was slower than the 5.7 per cent annualised rise recorded in June, the highest level this year. Dubai's biggest lender Emirates NBD expects the downtrend to broadly persist in the second half of this year.
“We think June marked the peak in inflation, with price pressures likely to ease over the coming months,” Emirates NBD chief economist Nick Stadtmiller said in a joint research note with senior economists Daniel Richards and Jeanne Walters.
In July, the transport division recorded the highest increase of 11.9 per cent. That was driven by a 41.4 per cent increase in passenger transport by air as well as fuels and lubricants for personal transport jumping 24.14 per cent higher, Dubai Data and Statistics Establishment, a part of Dubai Digital Authority, said on Wednesday.
However, the annual price growth in the transport category was slower than the 18.1 per cent recorded in June, as costs fell 3.7 per cent on the month.
Petrol effect
The rise in consumer prices in Dubai has been driven largely by the transport segment, which accounts for 9 per cent of Dubai’s Consumer Price Index basket. Changes in fuel prices “matter for headline inflation”, according to Emirates NBD.
Petrol prices, which have been unsubsidised in the UAE since 2015, are evaluated on a monthly basis, based on movements in global oil prices.
The UAE's consumer prices have broadly risen on a sharper trajectory compared to Gulf peers such as Saudi Arabia, where the state sets fuel prices.
Global crude prices, which rose nearly 109 per cent during the peak of the war compared to the start of the year, still remain about 50 per cent higher.
However, price controls have helped hold annual price gains in Saudi Arabia below 2 per cent in July, and inflation should remain subdued during the rest of the year, Emirates NBD economists said.
“Saudi Arabia is the clearest example of state-set prices blocking a key inflation channel,” Emirates NBD said.
Petrol accounts for 4.6 per cent of the Saudi CPI basket, but domestic prices have not risen this year despite a 50 per cent jump in global oil prices, they said.
Temporary rise
Although a drop in petrol prices in July in the UAE helped cut Dubai’s inflation, a rise in fuel prices in August may drive it a bit higher in the short term.
“July slowdown in Dubai’s headline annual inflation rate … strengthens our conviction that price growth peaked at mid-year,” Emirates NBD economists said. “Lower transport costs drove July’s price-growth moderation, but [the] August petrol price hike may trigger temporary rebound in inflation.”
Dubai's economy has largely resisted the slump speculated by some analysts, with housing sales and rents holding up. Many residents have found landlords holding rents steady or even increasing them on renewal.
The food and drinks division recorded an annual increase of 7.81 per cent last month, while housing, water, electricity, gas and domestic fuel recorded a rise of almost 7 per cent, largely driven by growth of “average residential rental prices in most areas of the emirate” an annual basis, according to latest government data.
