UAE: Inflation on an uptrend

5 min

Consumer price inflation increased to a nine-month high of 2.7% y/y in December 2017 (from 1.7% in November), taking the full-year average inflation rate to 2%, up from 1.6% in 2016. Rebounding oil prices boosted transportation costs, especially at the end of 2017 (9.3% y/y in December), thus contributing markedly to headline inflation. Similarly, prices for miscellaneous goods and services rose by 9.3% y/y in December due to recovering commodity prices. Food prices increased more modestly by 3.2% y/y in December and 1.2% in 2017 as a whole, while housing prices fell by -0.3% y/y (+0.9% for all of 2017). In 2018, we expect inflation to speed up to an average 4% as the UAE introduced a 5% VAT at the start of the year. The introduction of a 5% VAT in early 2018 had actually been announced across the GCC region but was implemented only in the UAE and Saudi Arabia. Facing administrative hurdles, the other six member countries are likely to delay the VAT implementation until mid-2018, at least.