Abu Dhabi July inflation up by 0.3%

Abu Dhabi recorded a rise in clothing and food prices that were likely driven by seasonal factors withthe Eid holidays in July. - File photo

Inflation in Abu Dhabi rose 0.3 per cent month-on-month in July, on higher food and clothing prices, says Statistics Centre of Abu Dhabi or SCAD. However, interestingly, housing rents which historically had been a major contributing factor in the rise of Consumer Price Index was missing in the latest data. Rents showed a subdued rise of up to one per cent increase in the second quarter of the year.
The rise in consumer prices for July 2015 compared with June 2015, pushed up consumer prices for citizen, non-citizen and share households by 0.3 per cent, said the statistics gathering agency.
The most significant groups, which experienced increases in prices during July 2015 compared with June 2015, were 'clothing and footwear' with 1.5 per cent and 'Food and beverages' with one per cent.
"The rise in clothing and food prices in July were likely driven by seasonal factors with the Eid holidays," said Dr Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Given the strong USD and weak global inflation, she said, "We believe that these drivers will likely moderate in the up-coming months."
However, she said "inflation is expected to accelerate in August with the increases in gasoline prices." She estimated that the fuel price change in August could add one percentage point to headline inflation.
Last month, Ministry of Energy linked the petroleum prices with the rise and fall in the international markets, in an effort to phase-out subsidies. The diesel prices dropped 29 per cent to Dh2.05 a liter, however, petroleum prices were revised upwards by 24 per cent to Dh2.14 a liter.
According to Carla Slim, an economist at Standard Chartered Bank, latest data shows that UAE inflation rose to 4.2 per cent year-on-year in June on the back of a 10.2 per cent year-on-year increase in housing costs and a four per cent year-on-year increase in education costs. Historically, the housing component has been a key inflation driver in the UAE.However, she said, "We identify a lag between inflation rates and the cost of housing." Inflation statistics have been slow to capture the rise in rents which started in 2011-12, she said in a research note on July 28.
The 10.2 per cent year-on-year increase in housing costs in the June CPI data is a reflection of the housing-market expansion of the last two years.
Both rents and property prices have moderated so far in 2015. As fresh supply enters the market, a flat price performance should start to feed through to 2016 inflation rates, given the statistical lag.
The rationalisation of energy subsidies will likely have a one-off impact on inflation rates, reflecting the first price increase, which will close the gap between the subsidised prices and the new de-regulated prices, she said.
"We expect higher fuel prices to feed through to the 2016 average inflation rate rather than that of 2015 since the new prices will only be implemented as of 1 August," the Standard Chartered Bank economist said. Moderation in the housing market should partly offset the one-off impact of higher fuel prices on 2015 and 2016 average inflation rates, she said.
She raised 2016 average inflation forecast to 4.3 per cent from four per cent previously and maintained 2015 average inflation forecast at 4.3 per cent.
Housing rents in Abu Dhabi grew one per cent in the second quarter of the year, real estate advisory firm CBRE said in its latest report.
Since the second quarter of 2013, average residential rents in capital have seen sustained growth and during the quarter this trend continued with just over one per cent increase, according to the second quarter 2015 Abu Dhabi Market View by global real estate consultancy firm CBRE.
JLL, another real estate consultancy saw a flat growth in rents in the capital, in the same period.
Consumer prices for households of the bottom welfare quintile increased by 0.5 per cent during July 2015 compared with June 2015, while consumer prices grew by 0.3 per cent for the middle and top household welfare quintiles. - haseeb@khaleejtimes.com

• Abu Dhabi