Inflation Heading Higher
BMI View: Consumer price inflation in the UAE will head higher in 2013, driven by solid economic activity and a tentative recovery in Dubai's housing market. We project inflation averaging 2.6% in 2013, compared to 0.6% and 0.2% in 2011 and 2010 respectively.
Consumer price inflation in the UAE is set to trend higher over the coming months, and could accelerate to its fastest pace in four years by the end of 2013. According to latest data from the National Bureau of Statistics (NBS) , inflation came in at a five month high of 0.7% y-o-y in February, up from 0.4% and 0.6% in January and December respectively. In month-on-month terms, prices contracted 0.1% in February, compared to a rise of 0.5% in January. Our baseline scenario sees inflation averaging 2.6% y-o-y throughout 2013, up from 0.6% and 0.2 % in 2011 and 2010 respectively, which is above consensus at the moment, and higher than the NBS' projection of 1.3%. A relatively solid macroeconomic backdrop and a gradual recovery in Dubai's housing market should help push the headline print higher. In contrast, we expect anaemic credit growth and the potential for further declines in Abu Dhabi's residential real estate market to help cap upside price pressures.
Latest data highlights a slight divergence in inflationary trends throughout the economy. Food prices (which have a 14% weighting in the consumer price basket) increased 2.5% y-o-y in February, which marked the slowest pace since February 2010. Sharp declines were witnessed in prices of meat and poultry, in addition to vegetables, which declined 3.1% and 2.7% respectively compared to January. For the time being, we hold a relatively benign outlook on the prospects for food price inflation through the remainder of the year, with our Agribusiness research team projecting broadly stable global soft commodity and wheat prices over the coming quarters.
|UAE - Consumer Price Inflation, % chg|