Inflation forecast to fall, except in Abu Dhabi

Inflation across the Emirates, with the exception of Abu Dhabi, may drop to 7.1 per cent this year.

Abu Dhabi, UAE - May 29, 2008 -  Carrefour Shoppers in Marina Mall. (Nicole Hill / The National) grocery store
 *** Local Caption ***  NH Marina Mall133.jpgNH Marina Mall133.jpg
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Inflation across the Emirates, with the exception of Abu Dhabi, may drop to 7.1 per cent this year from 12.2 per cent last year, say analysts, as commodity prices fall and property prices ease. "Falling aggregate demand has vastly diminished current and expected inflation," Citigroup said in a report. "This has happened directly as demand lags in each country, but also indirectly as the global drop in demand pushes down commodity prices and feeds into broadly lower consumer prices."

Inflation accelerated above 10 per cent in five of the six Gulf Co-operation Council countries last year as oil-revenue-fuelled economic growth created shortages of real estate and services, while the weaker dollar and higher global food prices made imports more expensive. According to the median forecast in a Bloomberg survey of six economists, inflation in the UAE will slow to 8.5 per cent this year, from an average estimate of 12.9 per cent last year.

Analysts concede that declining oil and property prices will curb inflation this year. "Inflation will definitely decrease this year. The main source of inflation the past couple of years has been rent and housing which is due to ease and bring inflation down as well," said Mahdi Mattar, the chief economist at Shuaa Capital. He added that Shuaa forecast inflation to drop to 7.1 per cent in the Emirates, with the exception of Abu Dhabi, which is expected to continue to face levels close to 12 per cent as the rent and housing markets show fewer signs of easing.

Economic growth in the Emirates will slow to 2.7 per cent from 6.7 per cent last year, Citigroup forecasts in its Global Economic report dated Jan 22. Inflation is predicted to slow throughout the Gulf as well, according to analysts. "In most GCC countries, inflation is a local phenomenon and it seems like inflation is easing across the board after seeing highs in 2008," said Mr Mattar. Inflation in Saudi Arabia slowed to 6.5 per cent this year from 9.8 last year, according to Citigroup's report. The Saudi economy, the largest of the Arab nations, will grow 2.2 per cent, down from 4.9 per cent last year.

Inflation in Qatar is predicted to slow to 9.5 per cent from 15.1 per cent last year and growth to ease to 9.3 per cent from 10.6 per cent. In Kuwait, growth will slow to 1.4 per cent from 4.8 per cent last year, according to Citigroup. Inflation is expected to halve from 10.5 per cent to 4.8 per cent. * with Bloomberg