Al Mansouri: Inflation touched 11.1% last year

Inflation in the UAE reached 11.1 per cent last year, Minister of Economy Sultan bin Saeed Al Mansouri has revealed. Higher rents and other household costs were the major drivers of the increase in the cost of living. This inflation figure was calculated by measuring the percentage changes in the prices of a representative basket of goods and services consumed by the average household in the country. Inflation stood at 9.3 per cent in 2006. "The inflation index, which is based on the consumer price index, is one of the tools that is widely used by government in drafting policies pertaining to salaries and wages in addition to making necessary adjustments to consumer income - such as payments made to social welfare recipients," said Al Mansouri. "Furthermore this indicator is essential for consumer protection analysis." Research by the ministry's Consumer Price Index Division indicated that inflation in 2007 was the result of price increases in all areas of consumer spending. The "rent and related household items" section of the index rose by the largest amount – 17.5 per cent – followed by "other goods and services" at 16.8 per cent. The increase in average prices in other areas ranged from three to eight per cent. The "rent and related household items" portion has the highest weighting in the index in any year –36 per cent. "If one considers the actual contribution of the expenditure groups in the inflation figure for 2007 one finds that the 'rent and related household items' group was the main contributor towards inflation," added Al Mansouri. "It contributed 6.5 per cent out of total inflation of 11.1 per cent, or about 58.6 per cent of the total figure. "The 'other goods and services' group followed, contributing 1.4 per cent towards the total inflation figure of 11.1 per cent, equal to about 12.8 per cent. "The contribution of each of the other expenditure groups to total inflation was less than one per cent. "It is clear from this analysis that the increase in the cost of rent and related household items was the main cause of inflation in 2007. This increase has been driven by two basic factors: The large increase in rental prices in 2007 and the large weighting that this group carries in household expenditure." The Minister said the consumer price index was based on a basket that was derived from the results of a household expenditure and income survey conducted in 1997. "This index is outdated since several goods and services currently consumed by average households did not exist back then. Consequently, the ministry has established, in cooperation with the IMF, the Consumer Price Index Division to develop and upgrade the system. This process consists of several phases, the most important of which was the recent household expenditure and income survey. "Results of this survey will be used to construct a new consumer basket which will better reflect the prevailing patterns of consumption in the UAE. It is expected that monthly inflation figures, based on the new consumer basket, will be available from early 2009." Local governments are attempting to contain inflation by capping annual rent increases and the ministry has also taken steps to tackle the problem. Through discussions with major distributors it has managed to fix the prices of basic commodities that constitute around 70 per cent of retail trade in the UAE. And in a move intended to help the construction sector the ministry has signed an agreement with a number of local producers to increase production to ease the pressure on prices.