Food prices in the UAE dropped last month in a sign that the cost of basic staples may be starting to fall.
Inflation eased 0.22 per cent last month compared with February as food, housing and transport prices dipped.
On an annual basis, the consumer price index rose 1.19 per cent last month compared with March last year. The index fell from a 1.52 per cent annual rise in February, according to data released yesterday from the National Bureau of Statistics.
Downward pressure on the index was led by the heavily weighted housing component, which also includes utility costs. Prices fell 1.39 per cent last month from the same period last year. An overhang of empty property units has ensured rents have fallen and inflation remains tamed for now.
"The trend is for benign price pressures to continue due to excessive surplus in the property market and low credit growth, " said Liz Martins, the senior economist at HSBC Middle East.
Residential rents in Dubai have already slumped by more than half from their peak. The situation is in sharp contrast to three years ago when an overheated property market fuelled double-digit levels of inflation.
While the property market remains a deflationary weight, other factors may yet reignite price pressures. The weakness of the US dollar, to which the dirham is pegged, is pushing up the cost of imports to the UAE. The dollar slipped almost 1 per cent against a broad basket of currencies last week.
"We see a pick-up in inflation in the second half of the year," said Ms Martins. "Input costs are going up for companies and so far we've only seen a limited pass on to consumers but we do have a weak dollar, liquidity picking up and higher oil prices."
Inflation in the UAE was forecast to reach 3 per cent by the end of the year, she said.
Food and beverage prices, another main contributor to the index, rose 5.02 per cent on an annual basis. The cost of foodstuffs including rice, sugar, pasta, cocoa and cooking oils have accelerated faster in the UAE than in parts of Europe, research from Euromonitor International has shown.
Clothing and footwear prices also declined last month, the statistics agency data showed.
On an annual basis transport prices accelerated faster than any other category within the basket, by 7.43 per cent. The latest of two rises in fuel prices - which combined totalled as much as 27 per cent - came into force last July after the Government decided to relax fuel subsidies.
Education costs rose 3.65 per cent, with recreation and culture costs increasing 6.9 per cent.
Government officials have been keen to emphasise the advantages of the low-inflation environment as a potential attraction for foreign business.
