The Dubai Consumer Price index witnessed a moderate uptick of 3.3 per cent during December 2023 as compared to the 3.4 per cent increase it witnessed during December-2022, a report showed.
According to Kamco Invest’s GCC Inflation Update for February, among the six GCC countries, only Dubai reported an increase in its average annual inflation rate which increased from 2.9 per cent in 2022 to 3.3 per cent in 2023. On the other hand, the rest of the GCC countries reported a decline in their annual average inflation rate from 2022 to 2023. Average annual inflation rate for Kuwait declined from 4.0 per cent in 2022 to 3.6 per cent in 2023. Similarly, average annual inflation rate for Saudi Arabia dipped from 2.5 per cent in 2022 to 2.3 per cent in 2023. According to the IMF, the primary factors that allowed the GCC regional countries to control their inflation so well are among other things, the combination of subsidies in energy sector, the prevalence of administered prices on basic food items and food security strategies, and the wider continuing economic diversification efforts.
Dubai’s CPI index growth was primarily driven by the 6.1 per cent increase in the housing, water, electricity and gas group, the highest weighted group, during December 2023. Additionally, Dubai’s food & beverages group, the third highest weighted group in the CPI, recorded a 4.2 per cent increase during December as compared to a decline of 4.5 per cent during December 2022. On the other hand, the transport subgroup (second largest weighted group) recorded 5.8 per cent decline during December as compared to 2.9 per cent decrease in December 2022, moderating the growth in the previous two subgroups in the CPI during the month. Overall, only three out of Dubai’s 13 CPI subgroups recorded year-on-year decreases during the month. In terms of average annual inflation growth, Dubai annual average inflation for 2023 reached 3.3 per cent, slightly higher than the IMF estimate for overall average inflation for the UAE during the year.
The report noted that the GCC’s inflation remains muted as compared to most other regions in the world where high inflation persists. According to the OECD, global headline inflation is estimated to decline to 7 per cent in 2023 and 5.2 per cent in 2024 as compared to an average of 9.5 per cent in 2022. “The persistently high global inflation for the last two years was underpinned by a combination of high energy prices and elevated commodity prices which were mainly driven by geopolitical tensions such as the Russia-Ukraine conflict,” the report noted. To combat the effects of high inflation, central banks around the world moved to raise their benchmark rates in unison, creating a higher for longer interest rate environment in the process.
According to the IMF, central banks have raised rates by approximately 400 bps in advanced economies and around 650 bps in emerging market economies during the period between late 2021 and October 2023. “This astronomical growth of global borrowing rates had an expected negative effect on the global economy,” the report, written by Junaid Ansari, Kamco’s head of investment strategy & research, and Mohamed Ali Omar, associate, noted.
Currently there is a sentiment that the period of continuous interest rate hikes has come to an end as most of the global central banks kept their benchmark rates unchanged.
However, there are new geopolitical challenges facing the global economy especially the Mena economies such as the ongoing war on Gaza and the disruption of global shipping lines in the Red Sea. According to the BMI, Middle East consumers are the most exposed to the Red Sea crisis as 81.6 per cent of the region’s imports travel along Red Sea routes that are exposed to the disruption. “In 2022, $229 billion of imported goods which were mainly from Europe and Asia reached the MENA region through these Red Sea routes. There are fears that the ongoing disruption in the Red Sea trade routes might heighten costs of goods and therefore put an upward pressure on the GCC as well as the MENA inflation,” the Kamco analysts wrote.