09/02/2014 10:00 AST

Inflation in the consumer price index (CPI) rose slightly to 2.7% y/y in December, from 2.6% in November. Although small, the move came as a surprise: inflation had been expected to fall sharply in December as a result of a base effect. While inflation should remain at moderate levels through 2014, Decem-ber’s higher than expected figure is likely to justify an upward revision to our year average forecast of 3.0% over coming months. On average, inflation stood at 2.7% in 2013, the lowest in nine years.

The ‘surprise’ in the December figure was driven by the housing services component - mostly rents. It rose by a larger than expected 2.0% m/m. The year-on-year rate still fell to 3.6% from 4.7% in November, but this decline was smaller than we had anticipated.Due to measurement issues, movements in this component can be choppy. But the latest figure suggests an annualized inflation rate of 8% or so - considerably faster than the general inflation rate. This could be a sign of the housing supply shortage spilling over into higher rents.

n Ironically - despite the upside surprise- housing was the only sub-component that made a notable negative contribution to the change in the headline y/y inflation rate between November and December. Most other index components saw meaningful increases. This was noticeably true in the ‘clothing & footwear’ and ‘furnishing & maintenance’ segments, inflation in both of which continued its sharp acceleration of recent months. The former reflects a rebound from a period of falling prices around a year earlier. The latter has seen especially strong m/m price increases for the past four months.

Meanwhile, food price inflation rose for the first time in seven months, to 2.8% y/y from 2.4% in November. This is still much lower than its recent peak of 6.3% reached last May. The deceleration in food price inflation over the past few months has for the most part been driven by falling food prices at an international level. Although the latter are still falling, the fall in CPI food price inflation may have gone slightly too far in 2H 2013 and could reverse somewhat in coming months.

Overall, the above movements appear to suggest that ‘core’ price pressures may now be rising, albeit from a very low base. Although one measure of ‘core’ inflation - the CPI excluding food - actually edged down to 2.6% from 2.7% in November, this was heavily influenced by the erratic housing segment. If both food and housing are excluded, inflation has actually rebounded quite sharply in recent months.

However, we had more or less anticipated this, and it does not alter our view that inflationary pressures will remain limited in 2014by a combination of a strong US dollar (which, via the currency regime is keeping import prices down), a still moderate economic growth environment, and low inflation in neighboring GCC countries. The high finishing point for inflation in 2013, however, does suggest some upside risk to our 3.0% year-average inflation forecast for 2014.A figure closer to 3.5% may now be more likely.


Arab News

Ticker Price Volume
QNBK 123.30 103,897
MMG 0.00 0
SABIC 100.87 2,504,855
CHEMANOL 7.11 932,192
TRADEUNION 20.69 200,872
TAWUNIYA 95.40 17,663
STC 71.32 119,991
Popularity of Islamic banking products slumps in the UAE

23/09/2017

The number of UAE consumers applying for Islamic banking products has declined since last year, according to a new study from yallacompare, the Middle East comparison website.

Yallacompare

Arabian Business

DEWA & Dubai Airports sign MoU to promote Smart Dubai

23/09/2017

Dubai Electricity and Water Authority (DEWA) signed a Memorandum of Understanding (MoU) with Dubai Airports, as part of the efforts to expand cooperation and joint efforts to promote Smart Dubai, lau

Media Office Dubai

DIFC’s Global Financial Forum will explore opportunities

23/09/2017

Dubai International Financial Centre (DIFC), the leading international financial hub for the Middle East, Africa and South Asia (MEASA) region, has today announced the preliminary speaker list for it

Media Office Dubai

UAE hails partnership with IAEA

23/09/2017

Hamad Ali Al Ka’abi, Permanent Representative of the UAE to the International Atomic Energy Agency, IAEA, has expressed the UAE’s appreciation for the Agency’s efforts in assisting member states to b

WAM

Saudi to introduce bankruptcy law early next year

23/09/2017

Saudi Arabia is set to introduce a bankruptcy law early next year as part of efforts to attract foreign investment and encourage private sector activity, said a report, citing Saudi-owned broadcaster

Trade Arabia