UAE fuel prices increase: Will residents have to pay more for groceries?

The price of groceries and other consumable items may go up in the UAE after fuel prices reached a record high in June. However, strengthening the dirham, which is pegged to the US dollar, will offset some of the impacts of inflationary pressure as UAE imports a large number of goods from other countries.

On Tuesday, the UAE increased fuel prices by more than 13 per cent for the month of June, reaching over Dh4 per litre for Super 98 and Special 95 due to an increase in global fuel prices.

Emirates NBD Research said in a recent report that inflation would average 4.3 per cent this year in the UAE as compared to its previous forecast of 2.3 per cent. “The upgrade takes into account the pass-through from the higher global oil and food prices as well as higher housing costs, particularly in Dubai,” it said.

Traders explained to Khaleej Times that transportation cost for suppliers increase when fuel prices are hiked in any country.

Dr Dhananjay Datar, chairman and managing director of Al Adil Trading, said: “Retailers in UAE try to absorb the price hikes because there is strong competition in the market and they can’t afford to lose customers. So when freight rates go up after petrol price increase, retailers look at alternatives to reduce their costs rather than increasing the prices. In addition, retailers also reduce their margins instead of increasing the prices to stay competitive."

A Dubai-based food trader said transportation and distribution companies will bear the brunt of the fuel price hike.

“In the food and beverage sector, prices of daily consumables such as fresh milk, bread, yoghurt and other such items could go up because their transportation requires refrigerated trucks - requiring more fuel consumption,” he explained on condition of anonymity.

Vijay Valecha, chief investment officer at Century Financial, said the UAE government regulates prices, and therefore, price hikes would be gradual.

“Since most of the food consumed in the UAE is imported, food prices are bound to rise due to burgeoning transportation costs. Nonetheless, one good thing for residents is that the dirham is pegged to the US dollar, and in the international forex market, the dollar has strengthened, which means value of the dirham has gone up. Additionally, a stronger dirham tends to decrease the price of imports, thereby reducing a bit the inflationary pressures,” said Valecha.

Based on international trends, he noted that there is a likelihood that grocery prices in the UAE on aggregate can increase by 6-8 per cent year-on-year.