Economists forecast price inflation soon

What's down Purchasing power. Consumers in the UAE could feel a pinch this year as prices begin to edge up, driving a rise in inflation.

Consumers in the UAE could feel a pinch this year as prices begin to edge up, driving a rise in inflation. Higher prices for imported food and a stabilisation in the country's property market are expected to nudge inflation marginally higher, say economists. High inflation can reduce the value of money, while concerns about future inflation can deter foreign investment.

This could spell higher prices at the supermarket and an end to the slide in home rental prices. National Bank of Abu Dhabi (NBAD) has forecast inflation of 2.3 per cent this year, while EFG-Hermes is predicting 2 per cent inflation. The IMF is expecting inflation of 1.5 per cent this year, up from 1 per cent last year, Sultan al Suwaidi, the Governor of the Central Bank, said on Monday. "We expect some additional price pressure from higher food prices globally, and more stability in housing prices will impact inflation," said Dr Giyas Gokkent, the chief economist and head of research of the asset management group at NBAD.

A credit-fuelled property bubble supported by surging oil prices sparked heavy inflation across the Gulf in the years before the financial crisis. This led to steady rises in the cost of consumer goods and property. Inflation in the UAE reached 10.8 per cent in 2008, according to the Ministry of Economy. A subsequent decline in the price of oil and weakening of property values helped relieve inflationary pressures across the region.

The inflation rate in Abu Dhabi was 0.78 per cent last year, while Dubai recorded a rate of 4.06 per cent. An official figure for the country as a whole has yet to be released. While there will not be a return to double-digit inflation this year, it could herald the start of inflationary pressures in Gulf economies, brought on by government stimulus measures that were aimed at spurring growth. Concerns about keeping a lid on consumer price rises have already prompted officials from the Ministry of Economy to increase checks on the price of food staples.

Rising prices for goods and services could become a detrimental side effect of a recovery from the financial crisis, economists warn. @Email:[e-mail]