Abu Dhabi's inflation up by 1.4%

The annual inflation rate for the Emirate of Abu Dhabi increased during the first quarter of 2015 by 1.4% compared to the fourth quarter of 2014, reaching about 5.0%, and recorded its highest level since January 2014 during the month of March, i.e. 5.4%.

According to the economic performance report of the Emirate of Abu Dhabi, issued by the Division of Studies in the Department of Economic Development in Abu Dhabi, the first months of 2015, in general, witnessed a significant increase in the annual inflation rates that reached 5.0% in January and 4.6% in February compared to the average inflation rate during 2014 amounting to about 3.2%, and to 1.3% in 2013.

The inflation rate during the first quarter of 2015 was influenced by the increases of water and electricity prices in the residential sector since January 2015 and. Residential rents and increase of water and electricity prices are considered of the most important factors causing inflation in the Emirate.

On the other hand, the housing, water, electricity, gas and other fuels group contributes by about 37.9% of the weight of the major expenditure groups of the goods basket forming the Consumer Price Index (CPI) in the Emirate of Abu Dhabi.

According to the figures issued by the Statistics Centre - Abu Dhabi, these increases resulted from the changes in the prices of goods and services forming the consumer basket.

An analysis of the contribution of the groups forming the consumer basket in the Emirate of Abu Dhabi in the total changes in the Consumer Price Index during the period (January-February 2015) showed an increase of the contribution percentage of the "housing, water, electricity, gas and other fuels" group in the total changes in the consumer price, reaching 85.4%, followed by the "furnishings, household equipment and routine household maintenance" group with 16.2%.

According to the reports issued by the Statistics Centre – Abu Dhabi, the rentals have increased during January 2015 by 9.7% compared to the January 2014, with the index reaching 109.7 points in January 2015.

The general trend of the index indicates an upward trend of the rental values of housing in the Emirate of Abu Dhabi, however, the market was stable since last August as the rental index ranged between 109 and 110.1 between August and December 2014, and declined in January 2015.

In spite of the fact that the decline is not significant, it indicates that the coming period will witness a sort of relative stability in rentals, especially in light of the decrease of oil prices, and shares of the stock market, which may affect the demand for rentals in particular.

The electricity costs increase since January 2015 is reflected in the increase of inflation rates during the entire year of 2015, where the figures issued from the National Bureau of Statistics indicate that the "housing, water, electricity and gas" has significantly increased in the United Arab Emirates during January 2015 by 2.48% compared to December 2014.

The report issued by the Centre stated that the main reason for this increase is due to the increase of the prices of water and electricity, which increased since the beginning of January 2015. The results of the economic forecasts of the Emirate of Abu Dhabi pointed to the expectation of increase of the inflation rate to reach 3.1% on average during the period 2014-2018.

It is noteworthy that the inflation rate in the Emirate of Abu Dhabi was not affected in the first quarter of 2015, by the increase of the Dirham exchange rate, as it is linked to the US dollar of which the exchange rate increased, and therefore the Dirham exchange rate increased against many currencies, especially the Euro, Japanese Yen and the Pound Sterling.

The UAE Dirham exchange rate against the Euro increased and ranged between 0.22 Euros / Dh and 0.26 Euros / Dh during the period January-March 2015, which reflects an increase of the Dirham exchange rate against the Euro by 12% during the said period.

The UAE Dirham exchange rate against the Pound Sterling has increased in general during the aforementioned period, in spite of the fluctuations taking place in that period, as the value of the Dirham against the Pound Sterling ranged between 0.1748 pounds / Dh and 0.1846 pounds / Dh during the period from January to March 2015.

As for the Japanese Yen, the value of Dirham against the Japanese Yen ranged between 31.67 Yen / Dh and 33.06 Yen / Dh during the period January-March 2015.

The levels of the inflation rate in the Emirate of Abu Dhabi in the first quarter of 2015 show that the impact of the increase of the Dirham exchange rate against many currencies on the cost of imports from these countries did not lead to a decrease or even the stability of the general price level, as some expected. This impact was lessened due to the influence of local factors such as increase of residential rentals and water and electricity prices in the residential sector since the beginning of January of 2015.