UAE March inflation down on cheaper food,transport

UAE March inflation down on cheaper food,transport

UAE inflation 1.2 pct y/y in March vs 1.5 pct y/y in Feb; Food, transport costs ease;

April 25, 2011 12:30 by Reuters

The rate of annual inflation in the United Arab Emirates edged lower to 1.2 percent in March following a drop in food and transport costs, official data showed on Sunday. The 0.3 percentage point fall in the rate was the fourth monthly decline in a row, data from the National Bureau of Statistics showed.

Consumer price growth in the world’s third largest oil exporter hovered close to 1 percent for most of 2010 as the debt woes of Dubai state-owned companies depressed bank lending and the once-booming property sector remained weak.

“We are going through a period where there is a bit of a lull in inflation in a number of countries including the UAE,” said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.
“What may happen increasingly is that higher energy prices begin to feed through into the economy. That will come with a delay. This may, therefore, be a slow period before we will see further increase in price pressures,” he said.

Analysts polled by Reuters expect average inflation in the UAE to be 2.5 percent in 2011.
Food costs, which account for 14 percent of the basket, dropped by 0.4 percent month-on-month in March, after a 0.1 percent rise the previous month.
The UAE said in March it would start subsidising rice and bread in April until the end of the year to combat rising food prices.
“Price control measures typically tend to have temporary success, creating pent-up pressure,” Gokkent said. “At some point, firms will pass on higher costs to consumers.”
Housing prices, the largest consumer expense at over 39 percent of the basket, fell by 0.4 percent in March, after a 0.6 percent drop in February. Transport costs decreased by 0.5 percent.
In March, the country’s central bank governor said inflation was not a worry, adding that he saw consumer price rises ranging around “very low” single-digit rates.
The UAE has escaped public protests that have shaken autocratic regimes in nearby Bahrain, Oman and Yemen. However, its government plans to spend $1.6 billion on infrastructure in less developed northern emirates.
On Thursday, UAE interbank rates fell to at least 14-month lows, reflecting improved liquidity in the banking sector and a drive by the central bank to encourage lower rates and spur lending, traders said.
Consumer prices in Bahrain fell year on year in March for the first time since online records began in 2007, data showed, as unrest in the Sunni-ruled island kingdom hit economic activity and brought tourism to a virtual standstill.
Prices fell by 2.1 percent from March 2010 and 3.5 percent from February, with housing and transport costs dropping sharply. Analysts said the deflation was linked to the unrest in the kingdom.
By Martina Fuchs
(Editing by David Cowell)