Big relief for consumers as commodity prices set for sharp fall

With prospects brightening for a sharp fall in global commodity prices in 2025, residents in the UAE can soon expect a big relief from the spiralling cost of living they have been grappling with during the past couple of years.

Global commodity prices are projected to fall to a five-year low next year owing to an oil glut that could limit the pressure on crude prices caused by a wider conflict in the Middle East, the World Bank has said.

According to the Washington-based multilateral lender, global commodity prices are forecast to fall by five per cent in 2025 and two per cent in 2026 after a three per cent decrease this year. Food prices are projected to fall nine per cent this year and four per cent in 2025, while energy prices are forecast to fall by six per cent in 2025 and two per cent in 2026.

Since many food items consumed in the UAE come from abroad, a drop in international shipping costs or tariffs directly affect local prices.

The World Bank said a decline in food and energy costs should help central banks control inflation, although conflicts could exert upward pressure on prices. The International Monetary Fund also reported in its latest World Economic Outlook that global headline inflation is expected to fall to 3.5 per cent next year, well below its 9.4 per cent peak in 2022.

Global factors, including rising import prices, have triggered a surge in inflation in the UAE. Although petrol prices, aligned with global crude rates, dropped in the UAE from Dh3.22 per litre in May, prices of most commodities, including food items remain very high.

During the first half of 2024, the UAE experienced a notable increase in the cost of living with rising rentals and commodity prices stoking inflation. Dubai's inflation rate, as per the Dubai Statistics Centre, rose from 109.91 in January to 111.34 in May, influenced by costs related to housing, utilities, and transport. The UAE’s Ministry of Economy has implemented a price cap on nine essential goods, including cooking oils, dairy, and bread to tame inflation and insisted that retailers must obtain prior approval to raise prices.

Consequent to the price cap and due to other factors, including a decline in fuel prices, the annual inflation rate in the UAE slowed to 2.5 per cent in September 2024 from 3.38 per cent in the previous month. Inflation rate averaged 1.73 per cent from 1990 until 2024, reaching an all-time high of 12.30 per cent in December of 2008 and a record low of -2.71 percent in May of 2020.

The World Bank said this price per barrel accounts for 15 per cent above its baseline forecast, but 5.0 per cent above the average price for Brent crude in 2024.