Inflation in UAE

Inflation in UAE:
Introduction:
The United Arab Emirates (UAE), as a small economy with an open
capital account and pegged foreign exchange rate regime, has limited scope for
exerting an independent monetary policy. More specifically, given that its key
policy objective is to maintain a stable peg with US dollar, domestic short-term
interest rates generally follow US interest rates and therefore, the Central Bank
of the UAE (CBUAE) does not anchor the inflation target. Moreover, inflation
in the UAE moves for the most part in response to other forces that are not
under the direct control of the central bank. Specifically, non-tradables account
for 63% of the CPI basket, of which housing accounts for 39% of the total.
Further, inflation of tradables (37% of the CPI basket) moves with
developments in the nominal effective exchange rate (NEER), largely attributed
to bilateral movements in the US dollar with respect to major trading partners.
While there is no explicit inflation target in the UAE, inflation is an important
economic indicator which the CBUAE closely monitors.1 The following
discusses the various inflation measurements and assesses the challenges
involved in capturing underlying inflation.
Inflation measurements
Inflation measures how quickly prices of a basket of goods and services rise in
a given period of time. In other words, it measures the general price level,
where a positive figure implies an increase in the cost of living and a fall in the
purchasing power of money. In general, the prices of a basket of goods and
services that are representative of the economy are collected; then the cost of
this basket is collated to generate a consumer price index (CPI), which is also
called headline inflation. In the UAE, headline inflation measures the price level
of a basket of 334 different categories of goods and services, collected by the
Federal Competitiveness and Statistics Authority (FCSA). This CPI is
calculated by using a Young index, which assumes expenditure weights are
constant over time.

Effects of Inflation In UAE:
Dubai’s consumer inflation rose to 4.6 percent in April, when compared on a
year-on-year basis. This was the highest reading since May 2015, according to
a report from Emirates NBD.
For the month-on-month figure, consumer prices rose 1.2 percent, the biggest
monthly increase since January 2018, according to new data from the Dubai
Statistics Center.
Khatija Haque, Head of Research and Chief Economist at Emirates NBD, said:
“The main driver of inflation in Dubai in recent months has been transport
costs, which were up 28.8 percent year-on-year in April, accounting for around
half of headline inflation.
“Food prices (8.6 percent higher year-on-year) were the second biggest driver of
inflation in April, followed by recreation and culture costs and restaurant and
hotel prices.”
Inflation rate in the Arab countries is expected to rise to approximately 7.5
percent in 2022, compared to 5.7 percent in 2021, reflecting the impact of
international supply chain challenges and the rise in the prices of agricultural
and industrial commodities as well as energy products due to current global
developments.
The 16th edition of the Arab Economic Outlook Report released by the Arab
Monetary Fund (AMF) added that some inflationary pressures are expected to
emerge over the forecast horizon due to the anticipated increase in aggregate
demand levels; the rise in consumption tax rates in some Arab countries, the
depreciation of some Arab currencies against major currencies, and the impact
of other inflationary factors that vary from one Arab country to another.
Reference:-https://www.arabianbusiness.com/politics-economics/inflation-
on-the-rise-in-the-uae-everything-you-need-to-know

Inflationary Trend in UAE:
Factors causing inflation of fuel and food prices 'beyond the control of central
banks': experts. IMF chief warns of 'increased risk of recession' in 2023. UAE
residents spending less due to rising inflation and cost-of-living. Global food
inflation looms as drought conditions worsen.
The biggest increase in the UAE’s CPI in 2021 was in the transport
component of the index, which reached 18 per cent year-on-year by December
and averaged a 9 per cent increase over the whole of last year. It is likely that
the main drivers of this increase were petrol prices and vehicle costs, both of
which have increased sharply over the last year.
UAE petrol prices had increased almost 48 per cent year-on-year by the end
of last year, reflecting the higher price of crude oil in 2021. While petrol
prices are likely to increase further in the short term — the February price rise
was 11.5 per cent month-on-month — as oil prices remain elevated, we expect
crude prices, and therefore, petrol prices at the pump to soften in the second
half of the year.