Rent caps not enough to tackle inflation

The decision by Abu Dhabi and Dubai to impose a 5 per cent cap on rent increases will check soaring prices but is not likely to tackle inflation, according to experts.

“The recent initiative to impose caps on rent rises remains weak and will not effectively contribute to tackling the problem of inflation,” said the Abu Dhabi Chamber of Commerce and Industry (ADCCI).

“What is really needed is a package of measures to check inflation and resolve the problem that has started to put pressure on the domestic economy.”

Ziad Dabbas, a consultant at National Bank of Abu Dhabi said the cap will help but is not a complete solution. “Prices of many items have increased... also don’t forget that part of the problem is caused by external factors like the fall in the dollar and high imports.”

UAE Central Bank shows all components of the consumer price index have grown, although rents saw the highest rise of around 11.3 per cent between 2003 and 2006. Transport and communication rose by 6.6 per cent and foodstuffs by six per cent. Inflation was put at nearly four per cent in garments, 3.4 per cent in health services, 2.9 per cent in recreation, education and cultural services, 2.8 per cent in furniture, and around seven per cent in other goods and services.

According to the International Monetary Fund (IMF), inflation was low at 2.2 per cent during 1998-2002 but rose to 3.1 per cent in 2003, five per cent in 2004 and 7.8 per cent in 2005. It surged to 10.1 per cent in 2006, but eased to eight per cent in 2007. But the IMF absolved the UAE fiscal policy.

“The UAE’s fiscal policy has remained prudent as evidenced by the decline in the expenditure to the gross domestic product and the non-oil fiscal deficit to the GDP.”

ADCCI said: “ It is time to devise a clear strategy to combat inflation. Indications are that supply shortages will widen and this will combine with rent rises to give a strong push to inflation rates.”