Inflation in the UAE will fall from a 19-year high to an average 5 per cent in the next five years as housing supply constraints ease, the Dubai Chamber of Commerce and Industry said.
Inflation would slow to 3.4 per cent in 2012 as "government fiscal expenditure restraint and the easing of housing shortage" take pressure off price rises, the chamber said in a report on Sunday, citing International Monetary Fund forecasts.
Prices in the second-largest Arab economy rose 9.3 per cent in 2006, the fastest pace since at least 1988.
UAE inflation will accelerate to 10.1 per cent this year before easing to 8.9 per cent in 2008, a Reuters poll of 12 economists showed this month.
"The danger of such high inflation is the risk of undermining the competitiveness of the economy and therefore jeopardising the long-term growth prospects of the economy," the chamber said.
Reducing inflation and addressing exchange rate policy are among the main issues facing policymakers in the country, it said without elaborating.
Like most Gulf Arab oil producers, the UAE pegs its dirham currency to the dollar, forcing it to follow US monetary policy at a time when the Federal Reserve is cutting rates to contain the fallout of a mortgage crisis.
UAE Central Bank Governor Sultan Nasser Al Suweidi said last month he was under mounting social and economic pressure to sever the dirham's dollar peg and track a currency basket, including the euro.
He backtracked on those remarks this month after Gulf rulers agreed at a summit in Qatar to retain dollar pegs and keep any talks on currency reform secret.
Inflation in the UAE is temporary and mostly caused by domestic factors rather than the dirham's peg to the weak dollar, Suweidi said in a television interview this month.
Only about 3 percentage points of inflation are a result of currency policy and rising rents were the main driver of price rises, he said. (Reuters)