Rise in food prices fuels domestic inflation - Emirates24|7

Rise in food prices fuels domestic inflation



The sharp increase in food prices coupled with the weakening of the UAE dirham against the currencies of major sources of food imports has put additional pressure on domestic inflation, the Dubai Chamber said yesterday.

According to the Ministry of Economy, in 2006 the national headline inflation rate was 9.3 per cent, with inflation for food lower at 5.1 per cent. However, the price of staple food products such as bread, flour, milk and rice, have increased considerably more than this, the Chamber said in its latest research.

"Over the past year (Q1 2007 – Q1 2008) the Dubai Chamber has been monitoring the price of food in Dubai. Sugar has experienced the smallest rise at only 9.73 per cent, marginally above the UAE's headline inflation, while flour has experienced the highest with an average increase of 57.72 per cent over the past year. Some brands of wheat flour have risen by as much as 145 per cent, corn flour by 162 per cent and wholemeal by 164 per cent between 2007 and 2008," it said.

Similarly, the price of rice, bread, eggs and powered milk have also increased over the period. These increases are significantly more than headline inflation and are thus adding to the overall cost of living in the UAE, the Chamber said.

According to the weights in the Ministry of Economy's Consumer Price Index, food comprises 14.4 per cent of the total basket.

"The rise in prices in Dubai can, therefore, be attributed in part to the global trend in rising food prices, which is then exacerbated by the depreciation of the UAE dirham. In an attempt to alleviate some of the pressures, the UAE's Ministry of Economy has formed alliance with the Union Co-operative Society and other hypermarket chains to freeze the prices of some food items at their 2007 levels."

The UAE's semi-arid climatic conditions, poor soil quality and diminishing water supplies make growing food domestically expensive. As a result, the UAE is a net importer of food. In 2006, agriculture constituted only two per cent of GDP.

Between 2002 and 2006 the US dollar has depreciated by an average of 1.5 per cent per annum with the Japanese yen, 6.4 per cent with euro, 4.8 per cent with British pound, 1.7 per cent with Indian rupee, 1.2 per cent with Chinese yuan and 7.7 per cent with Australian dollar. According to the United Nations, global food prices have risen by 40 per cent in the past nine months and food reserves are at the lowest for 30 years. Poor harvests coupled with high population growth, rising energy and grain prices, the effects of climate change and a shift toward bio-fuel crops are all cited as contributing to this trend.

The impact has been felt globally with food riots breaking out in Morocco, Yemen, Mexico, Guinea, Mauritania, Senegal and Uzbekistan. Pakistan has reintroduced rationing. Russia has frozen the price of milk, bread, eggs and cooking oil for six months, and and India has banned the export of rice.