Saturday, May 03, 2008

Inflation Is Here To Stay in the UAE



I went for shopping today at Carrefour Deira City Centre. Comparing the amount paid for the groceries bought, nothing much to say or complaint and had to accept the reality of living in the UAE nowadays. Inflation is really taking a lot of dirhams from our pockets and majority of expatriates will be even hit harder for more bad news to come this year.
According to a top official, food price inflation in the UAE could rise up to 40 per cent this year from the already high 27 per cent. Today's shopping confirmed this.
The inflation rate of food prices in the UAE was between 27 and 30 per cent in 2007, according to a survey concluded by Emirates Consumer Protection Society (ECPS). This figure can rise to 40 per cent in 2008, unless strong government intervention takes place by introducing a basket of efficient measures.
The price of basic foods in the United Arab Emirates surged 36 percent over the last year, in part because the dollar-pegged dirham declined, making some imports more expensive.
The price of cooking oil soared 80 percent and basmati rice climbed 50 percent. Sugar prices rose 31 percent and eggs 19 percent. Mutton prices more than doubled.
Food price inflation is a global phenomenon, but GCC countries are particularly affected because of their weak, dollar-pegged currencies. If they revalue, food imports will become cheaper.
Currency pegs and high oil and food prices were compounding inflation but the Minister of Economy warned that exchange rate and other tools should be treated with more caution. The UAE has tried to curb inflation partly by signing agreements with supermarket chains to fix food prices at 2007 levels as well as also introduced rent caps, public sector pay rises and food subsidies.
Food and rentals are the main cost of living.
As per a survey conducted by a government department, the low and middle income classes were the hardest hit by the soaring rents, as they spend over 50 per cent of salary on accommodation. Meanwhile, the high income class was less hit, as they spend 23 per cent of their salary on accommodation. This is so close with advanced countries in which the high income class spend 19 per cent of their monthly income on accommodation, according to the statistical report issued by OECD.
The main culprit for the soaring prices is attributed in the first place to shortage in residential and commercial units to meet the rising demand, particularly from low and middle income classes. In the first quarter this year, the rents increased by 17 per cent compared to corresponding period last year.
Other factors which keep rents soaring unabated is the growth in number of commercial units. The commercial units cut continuously the number of residential units. As rent of three bedroom residential units is too expensive to afford, landlords of these units opt to rent them out as commercial units. This reveals that the supply of commercial units expands at expense of the residential units, leading to exacerbation of problem.
Here we are, after all these years living in luxury, time to really face the hardship with better understanding of the reality and economy cycle. The Quran in surah Yusuf has mentioned about seven years of bountiful years followed by seven years of hardship period.
Or time to move on for greener pastures somewhere else?

2 comments:

rascal r us said...

Perhaps the UAE leaders can learn a bit from Malaysia.
RunAway inflation can be controlled if they de-pegged the Dirham from the USD and pegged it to basket of other currencies. Introduce food price control and cushion the blow with Food subsidy. Petrol in the UAE is now surprisingly more expensive than Malaysia!
You see if the UAE leader were really concerned about the people thay would do this as they tremendous amount of foreign reserve. I have a feeling the family is running the country like a corporation. When the time gets tough, the access workers gets going.

Zawi said...

Fudzail,
Kinda scary to lok at the inflation figures in your post. Whatever high income received may not be enough soon to pay for the higher cost of living.