Dollar peg blamed for rise in Dubai inflation

Inflation in Dubai rose by a record 0.76 per cent in the first half of 2011 compared to the same period last year fuelled by a 0.5 per cent increase in consumer prices, the Dubai Statistics Centre said on Tuesday. The first-half figures show that transport costs rose 8.5 per cent, food and drink 5.38 per cent, restaurants and hotels 3.9 per cent and education 3.41 per cent. Health costs increased 3.37 per cent, furnishings, household equipment and routine household maintenance 2.47 per cent, alcoholic beverages and tobacco 2.18 per cent, miscellaneous goods and services 1.79 per cent, communication 0.36 per cent, and recreation and culture 0.13 per cent. These numbers measure the periodic changes in the general level of consumer prices in a limited period. Article continues below But while consumer prices increased, utilities — including water, electricity, gas, and other fuels — and housing fell 3.19 per cent, while prices of clothing and footwear as a group fell 0.97 per cent. Abdul Hamid Radwan, a leading UAE economist, told Gulf News: "The increase in the general price levels is considered a measurement of inflation in the UAE economy." Above all, Radwan attributed the increase in inflation to the dirham being pegged to the dollar. chince the consumer demand in the local market in Dubai almost always depends on imports, with only ten to 15 per cent reliance on domestic production, the purchasing power of the dollar is very important to the dirham. "As long as the dirham is pegged to the dollar, the inflation rate in Dubai and the UAE will fluctuate with the greenback's volatility." Despite the government's attempts to cap the prices of essential products, Radwan said it was very difficult to control consumer prices while the UAE was connected to the US economy. Inflation in Dubai, which accounts for 28 per cent of the UAE economy, reached a record high of 10.8 per cent in 2008, a hike attributed to the boom in the real estate sector. But Radwan said: "We have rents and housing costs still coming down, and this is going to offset the increase in food prices to some extent while inflation is escalating. The Ministry of Economy expects the country's inflation rate to accelerate to 2.5 per cent this year from 0.9 per cent in 2010, which was the lowest annual level since the Gulf War in 1990. Radwan said the second main reas on behind the rise in inflation was that most consumer goods in the local market are imported from China, which is also facing a strong increase in inflation. This ultimately reflects on the UAE and other countries around the world that are major importers of Chinese goods.