Dubai: The continued decline in oil prices, coupled with a strong US dollar, has taken a bite out of the cost of some consumer goods and services in the UAE.
The latest consumer price index (CPI) prepared by the Economics Group at the National Bank of Abu Dhabi showed that the prices of food and non-alcoholic beverage, clothing and footwear, health care, transportation and communication in the country have already started to fall.
The reduction in consumer prices, which is expected to continue in the second quarter, is seen as a relief to residents in the UAE, although the impact will be greatly felt if housing rents will also decline. Analysts had earlier predicted that the drop in the price of oil will translate into lower household expenses.
According to the CPI, the price decline recorded between December 14 and January 15 was led by the food and non-alcoholic beverage category, with the CPI falling by 1.68 per cent, from 143.86 to 141.45.
The general, index, however, increased slightly by 0.68 per cent, as the cost of housing and utilities, the biggest contributor to UAE inflation, rose significantly by 2.48 per cent.
UAE consumers also continued to pay more out of their pockets for non-essentials, such as restaurants and hotels, up 0.13 per cent, recreation and culture (0.04 per cent) and furniture and other items (.75 per cent). Education costs remained unchanged during the same period.
Alp Eke, NBAD senior economist, had earlier predicted that due to the oil price decline and strong US dollar, consumers are likely to spend less on food and non-alcoholic beverages, alcohol and tobacco, clothing and footwear, furniture, textiles and home appliances, restaurants and hotels, as well as health care. He did not forecast the same for housing rents in the UAE.
“We should expect utilities, transportation categories in the household budget to go down as well,” he told Gulf News.
Eke explained that the cost of goods and services is mostly associated with the price of oil, being a key component of production.
“Oil as a commodity is an important input for the economy. As a product, it is actively used in many sectors as an input or intermediary product. The direct impact can be seen in transportation and utilities categories in household budget,” Eke said.
“Indirectly, [oil price] can be considered an intermediary item for other categories in the household budget. So the price of gas affects the price of end products.”
It’s not only oil prices that are putting a downward pressure in consumer goods and services. “In 2015, there is already a downward pressure in imported inflation items because of the strong dollar,” Eke said.
“The dollar has appreciated in value with respect to major currencies. About 20 to 25 per cent of UAE inflation is imported and we should expect the prices of [some] categories to go down.”
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