Rising rents drive Dubai inflation to highest since late 2009

"Iinflation is bound to rise. Today’s number is likely to be just the start," one economist says after Dubai reports a 2.6 per cent inflation rate for February.

Housing and utility costs, which account for almost 44 per cent of consumer expenses, jumped 4.5 per cent year-on-year in February. Lee Hoagland / The National

Dubai inflation is running at the highest level since December 2009, as higher rents hit consumers in the pocket.

Prices in Dubai rose 2.6 per cent in February compared with last year, according to figures released by Dubai Statistics Centre. Prices across the UAE are expected to rise at 2.5 per cent this year and 2.7 per cent in 2015.

“We’ve been warning for some time that in such an environment inflation is bound to rise. Today’s number is likely to be just the start,” said Simon Williams, the chief economist at HSBC Middle East.

“Economic growth is strong, sentiment is bullish, job creation is gaining speed and credit creation is on the rise. I don’t expect to see double-digit inflation this year, but do anticipate that price growth will be running at close to 5 per cent by the end of 2014 and will be gaining momentum. It will require decisive, pre-emptive policy action to avoid a return to the kind of rapid price gains we saw during the 2003-08 cycle.”

Housing and utility costs, which account for almost 44 per cent of consumer expenses, jumped 4.5 per cent year-on-year and rose 0.6 per cent month-on-month in February. Food and beverage prices, which account for 11 per cent of the “basket”, increased 3.7 per cent on an annual basis but fell 0.7 per cent from the previous month.

“It doesn’t seem to align with the cost of living and our view is taken on the basis of rents taken over the past 12 months,” said Matthew Green, head of research at the housing consultancy CBRE. “In Dubai we saw a 6 per cent rise just in Q4 2013 and a 24 per cent increase across the year from rentals. We, of course, only deal with new rentals and there are constraints in place, such as the rent cap, to keep rental inflation under control.”

Abu Dhabi’s inflation rate rose to a three-year high last month, fuelled by a rise in food prices and housing. The emirate’s consumer price index rose 2.6 per cent in February from a year earlier.

Fish and seafood, along with vegetables and coffee, tea and cocoa were the main contributors to higher inflation in the food and non-alcoholic beverages category, according to data released by Statistics Centre-Abu Dhabi.

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