July inflation slows to low

Inflation in the United Arab Emirates eased to a three-month low of 1.3 percent on an annual basis in July helped by a weak housing market, data showed on Sunday, and analysts expect price pressures to remain low in the coming months. 

Consumer price growth in the world's No. 3 oil exporter has been holding above 1 percent so far this year, after an average 0.9 percent seen in 2010, which was the lowest annual level since the Gulf war started in 1990. 

In June, inflation reached a six-month high of 1.7 percent and analysts polled by Reuters expected it to advance to 2.5 percent on average in 2011 . 

On the month, living costs fell 0.2 percent in July after a 0.4 percent increase in the previous month as declines in housing and transport costs more than offset a jump in food prices, data from the National Bureau of Statistics showed.     
 
"Rents will continue to play a moderating role in inflation, while other categories are pushing inflation up," said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.   

Housing prices, the largest basket item with a 39 percent share, dropped 1.6 percent month-on-month in July and inflow of new housing units is expected to keep the market weak in the coming months. Transport prices dipped by 0.1 percent.   

Food costs, which account for 14 percent of consumer expenses in the $298 billion UAE economy, jumped 1.6 percent month-on-month in July after a 1.4 percent increase in June. 
The UAE, which has escaped the public protests that have rocked autocratic regimes in nearby Bahrain, Oman and Yemen, said in May it would fix the cost of about 400 foodstuffs and household products until the end of the year.  

It has also called on retailers to offer discounts of up to 50 percent in the Muslim holy month of Ramadan, which started in August. Food prices usually surge during Ramadan as families enjoy more elaborate evening meals after the daylight fasting.   

"Although there might be a short-term upside push from the 'Ramadan effect', we see price pressures remaining benign at least for the rest of 2011," said Liz Martins, senior MENA economist at HSBC in Dubai.   

UAE Economy Minister Sultan bin Saeed al-Mansouri said in May he expected inflation between 1 and 1.5 percent this year.   

A survey showed this month that private sector business activity in the UAE expanded at its slowest pace in seven months in July as output rose at the weakest rate for a year and new order growth slowed sharply.  

The second largest Arab economy is seen expanding by 3.7 percent this year after a 1.4 percent growth in 2010, when the UAE trade and financial hub Dubai grappled with a debt crisis in some of its state firms.

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