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UAE: Inflation is set to drop this year due to softer price increases

Economists echoed Central Bank projections, saying cost of living will be among the lowest in the region

Published: Mon 3 Apr 2023, 4:32 PM

Updated: Mon 3 Apr 2023, 5:20 PM

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The cost of living is set to drop in the UAE in 2023 and 2024 on the back of a slower rise in different segments of the economy as well as the disinflation trend in other countries.

The UAE Central Bank has projected that inflation in the country will decelerate to 3.2 per cent due to softer price increases in all categories, especially transport and food and beverages.

“Imported inflation is expected to be modest owing to the disinflation trend worldwide, while rents and wages are also expected to contribute moderately. In 2024, inflation is projected to slow further at 2.8 per cent, in line with global trends,” the Central Bank said.

The cost of living started rising as the country began recovering from the pandemic, driven by higher demand for products as the population started to increase with a strong inflow of foreign workers as companies began to hire again to meet demand.

Similarly, following a consistent rise after the pandemic, rental rise in the UAE has slowed down in most areas and stabilised in some areas.

In addition, interest rates hikes by the UAE in line with the US Federal Reserve has also helped rein in inflation in the country.

Abdulla bin Touq Al Marri, Minister of Economy of the UAE, said in December during a news conference that inflation is one of the lowest in the world and it’s expected to drop further in 2023.

"Inflation in the first nine months was 5.5 per cent, one of the lowest in the world. We are looking at inflation going down further next year," Al Marri said during the press conference.

As per Central Bank CPI inflation data, the cost of transportation, food and beverages, recreation and culture fell in the fourth quarter as compared to the previous quarter.

Economists echoed the Central Bank projections, saying inflation will ease in the UAE and Gulf this year and will be among the lowest in the region.

“Inflation in Dubai edged up to 4.9 per cent year-on-year in February 2023 on the back of stronger food inflation. But this is well below last year’s peak and we think the headline rate will ease this year,” said William Jackson, chief emerging markets economist at Capital Economics.

Jackson said inflation has slowed at the start of this year across the Gulf region. “We think it will continue to do so over the rest of this year.”

According to Oxford Economics, inflation in the UAE will more than halve this year and will be one of the lowest among the regional countries in 2023. It will be averaging 2.1 per cent as compared to 5.6 per cent last year.

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