The Central Bank of the UAE (CBUAE) recently revised its inflation forecast downwards to 2.3 percent for 2024 from its previous projection of 2.5 percent. In its latest quarterly economic review, the central bank also forecasts inflation to average 2.3 percent in 2025, mainly due to the non-tradeable component of the basket, rising domestic demand, and potential depreciation of the nominal effective exchange rate of the dirham.
Dubai’s inflation moderates
CBUAE’s report reveals that headline inflation in Dubai moderated in the first quarter of 2024, which was in line with global trends and remained below the global average. According to the Dubai Statistics Center, the average headline consumer price index inflation averaged 3.4 percent annually in Q1 of 2024.
In April 2024, inflation in Dubai accelerated to 3.9 percent, due primarily to a significant increase in transport prices by 3.3 percent compared to an average -2 percent annually in Q1 2024. The increase in transport prices reflects the rise in global energy prices due to geopolitical conflicts and concerns over ongoing supply chain risks.
Meanwhile, housing prices in Dubai continued to rise, reaching 6.5 percent on an annual basis during April after an average of 6.3 percent annually in Q1 2024. Besides, the food and beverage group’s inflation declined in April 2024 to 2.3 percent annually from an average of 3.3 percent in Q1 of 2024.
The CBUAE report also reveals that inflation in all other categories of Dubai’s consumer basket declined or remained unchanged in April 2024, compared to their average in Q1 2024, except clothing and footwear, health, recreation, sport and culture, and restaurants and accommodation services.
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Global outlook
The CBUAE report notes that uncertainties surrounding the global economy remain high, with potential divergent implications for the UAE economy. “Despite the IMF’s upward revision of U.S. GDP growth to 2.7 percent in 2024, recent data shows a probability of slower growth, estimated to be around 1.8 percent,” stated the central bank. It also expects growth to decline in China and other advanced and emerging economies, mainly driven by lower private consumption.
Meanwhile, global inflation should continue its decline despite risks, including higher transportation costs and supply chain disruptions due to geopolitical tensions.
The report stated that depending on inflation dynamics in the U.S. and in the E.U., interest rate cuts will follow different schedules, which was evident in the latest rate cut in Europe.
“Interest rate differential can continue the appreciation of the USD, and therefore of the dirham, which will contribute to mitigating inflation in the UAE, with negligible impact on non-oil exports’ competitiveness,” added the central bank.
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