Food inflation in UAE falls as measures take effect

Food inflation in the UAE sharply receded in April after more than a year of steady increase, indicating a series of government measures to control prices have started to produce results.

After surging by between one and six per cent in February over the previous month, the general food index grew by between zero and three per cent in April over March, the Ministry of Economy said in its latest monthly update.

The decline followed a series of agreements signed by the ministry with Carrefour, Lulu Hypermarket and Bani Yas Co-operative Society to freeze the prices of dozens of food items in a bid to curb a steady rise.

But dealers believe such measures could be successful only in the short term on the grounds most of the country's food is imported and prices are recording rapid increases worldwide.

"These measures are good for now but the question is whether local suppliers can freeze prices for a long time," an Abu Dhabi retail food trader said.

"I don't know how the Ministry of the Economy is subsidising those supermarkets, considering the worsening world food price crisis, I believe those agreements could be revised at a later stage to cope with a higher food import bill."

The ministry's report showed the vegetable index recorded the highest growth of 2.33 per cent in April but it remained far lower than the 5.3 per cent rise in February. The meat and fish index sharply slowed down to 0.86 per cent from 3.45 per cent while dairy products retreated to 0.83 from 1.43 per cent.

The index of basic items, which include wheat, cereal and other grains, plummeted to 0.5 per cent from 3.36 per cent despite an increase of more than 20 per cent in rice prices since the start of 2008. Only fruit recorded inflation growth, rising by 3.71 per cent in April after relative stability in February.

A breakdown showed the prices of the majority of food items have recorded relative stability, indicating those marketing outlets are complying with the price freeze agreements. A small part of the listed foodstuffs recorded sharp increases while the prices of some other items declined. The report showed only three of the 15 types of vegetables recorded a price rise of above five per cent, while four declined by more than five per cent. The remaining eight items recorded falls or growth below five per cent. The prices of three types of the 19 listed meat and fish items rose by more than five per cent, while 19 recorded relatively stability.

As for dairy products, two items grew by over five per cent, while two others recorded a rise of below five per cent and the rest remained almost stable.

The price of three of the 19 listed basic items declined by more than five per cent, while two of them increased and the rest stabilised. "A total of 98 food items recorded relative stability in April as they either increased or declined by less than five per cent," the ministry said.

Experts believe the decline in April will not have a major impact on general inflation in the UAE, since inflation rates are more affected by rents, which have jumped by at least 20 per cent in Abu Dhabi since the start of 2008.

Officials have blamed rents for nearly 60 per cent of the inflation, while the other reasons include the rising prices of food, fuel and building materials.

Foodstuffs and beverages had a relative weight of 14.43 per cent in the Ministry of Economy's general consumer index for 2006, while rents accounted for as high as 36.14 per cent. Other key sectors in the index's 10 subcomponents are transportation and communications, with 14.93 per cent, recreation and education, 10.29 per cent, and furniture and related items, 7.4 per cent.

The UAE has not yet released updated inflation figures but the rate is expected to climb to double digit levels this year compared with 9.5 per cent in 2007.

Given its rapid population growth and poor farm potential due to its desert nature, the UAE has emerged as a major food importer, with the bill hitting $3.11 billion (Dh11.4bn) in 2006 from about $1.6bn in 2000.

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