Annual inflation in the UAE soared to 1.7 per cent in June as food prices hit a nine-month high, official data showed on Tuesday, but the housing component helped contain price pressures.
On the month, living costs rose to an eight-month high of 0.4 per cent in June, after a 0.2 per cent rise in May, data from the National Bureau of Statistics showed.
Consumer price growth in the world's third-largest oil exporter hovered close to 1 per cent for most of 2010.
"I would assume that inflation continues to rise, driven by food prices and the transport category," said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.
Inflation in the Opec member climbed to a three-month high of 1.4 per cent on an annual basis in May.
Food costs, which account for 14 per cent of the basket, soared by 1.4 per cent month-on-month in June, after increasing by 1.3 per cent in the previous month.
The UAE has also called on retailers to offer discounts of up to 50 per cent in the Muslim holy month of Ramadan, which begins in August, when food prices usually surge.
Housing prices, the largest basket item with a 39 per cent share, increased by 0.2 per cent on a monthly basis in June after declining for six consecutive months as the property sector remains weak.
"The rent factor is acting as a moderating element in the CPI because of additional supply coming on stream both in Dubai and Abu Dhabi," Gokkent said.
Transport costs were unchanged month-on-month in June after edging up 0.1 per cent in May.
Analysts polled by Reuters in June expect average inflation in the UAE to reach 2.5 per cent in 2011.
In March, the Gulf country's central bank governor said inflation was not a worry, adding that consumer price growth should range around very low single-digit rates.