The UAE inflation rate edged up to 2.4 per cent last month, driven by mounting housing costs, in yet another sign that the economy is heating up.
The annualised inflation rate for August rose from 2.3 per cent in July, and is up 1.3 per cent against the previous August.
Housing and utility costs rose 2.9 per cent year-on-year, and account for about 40 per cent of consumer expenditure in the country.
"The rental price increases were not reflected in earlier indices," said Dima Jardaneh, senior economist at EFG Hermes in Dubai. "But early signs suggest that rental prices are due to decrease – so that would lower house cost inflation, which had been driven by price increases in Dubai's housing market."
In the 12 months to July, apartment rental costs rose 15 per cent in Abu Dhabi, while average housing sale prices rose 6 per cent, according to the real estate consultancy JLL.
But more recent data shows that housing cost rises may have reached their peak. A recent CBRE report showed a 1 per cent fall in rent prices – the first decrease in three years.
Furniture prices rose 3.6 per cent as the volume of refurbishments and housing stock churn rate increased.
The cost of education rose faster than any other element of the index, gaining 4.4 per cent against the previous year, as the shortage of private school places bites.
Food price inflation, which accounts for 14 per cent of spending, dropped slightly to 2 per cent.
This follows a number of inflation indexes that have shown prices creeping higher.
Dubai inflation hit a five-year high of 3.5 per cent in August, while prices in Abu Dhabi increased at 2.8 per cent year-on-year in July’s consumer price index. Housing and utility price rises were responsible for both increases.
Inflation is increasing faster than economists expected, with an April Reuters poll of analysts predicting an increase of 1.9 per cent this year and 2.5 per cent next year.
The IMF predicts that inflation in the UAE will hit 2.2 per cent by year-end, and 2.5 per cent in 2015.
abouyamourn@thenational.ae
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