UAE inflation rises to 4.9% after reduction in fuel subsidies

Inflation in the UAE rose to 4.9 per cent last month from August last year as the increase in petrol prices led to a spike in transport costs.

The countrywide data follows statistics released last week showing that annual inflation in Abu Dhabi rose to 6.1 per cent last month for the first time since 2008, while inflation in Dubai fell to 4.4 per cent from 4.8 per cent earlier this year.

Transport costs rose 12 per cent in Abu Dhabi and 10 per cent in Dubai.

The federal government changed its method for calculating the state-subsidised fuel price in July.

Fuel prices are now determined by the average prices from the previous month of international benchmarks, plus a margin for the Abu Dhabi National Oil Company and the Emirates National Oil Company. The cost of 95 octane unleaded petrol rose 24 per cent to Dh2.14 per litre last month, up from Dh1.73 per litre in July.

The price of diesel fell 29 per cent to Dh2.05 per litre, but it does not have a direct effect on the consumer price inflation measure used to calculate countrywide inflation. The effect of higher transport costs is likely to fade from next month’s inflation figures after fuel prices this month fell from August. Petrol fell to Dh1.96 at the start of this month, down 8 per cent, while diesel fell 9.3 per cent. The government decided to act on fuel pricing, effectively cutting energy subsidies, after the oil price collapse. Benchmark Brent crude futures have fallen from about US$110 per barrel in July last year to $42 per barrel in the middle of last month.

In Dubai and Abu Dhabi, housing costs continued to drive inflation.

In Dubai, housing costs rose 7.3 per cent year-on-year last month, according to official data, which likely lags behind current market developments.

In Abu Dhabi, rents continued to rise, although a breakdown of the inflation basket was not provided. Rents in Abu Dhabi are now the second-most expensive in the world, with the average household spending $2,649 per month on rent, according to a report published last month by the real estate consultancy CBRE.

Rents in the city have been rising since the abolition of the 5 per cent cap on rents in November 2013. They rose an average 17 per cent last year, according to CBRE.

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