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ALERT: Abu Dhabi inflation on the rise

The inflation rate in consumer prices for the first four months of 2017 in Abu Dhabi reached 2.2 per cent compared with the same period of 2016, according to Statistics Centre Abu Dhabi.

The increase was on the back of rises in the price of housing, water, electricity, gas and fuel, which went up 3.7 per cent in the first four months, compared to the same period in 2016.

Meanwhile, transport prices went up by 5.6 per cent over the same period.

In April alone, consumer prices went up by 2.3 per cent compared with the same month 2016, but prices were down 0.4 per cent when compared to March 2017.

The rise in consumer prices for the first four months of 2017 compared with the same period of 2016, contributed to an increase of 2.7 per cent for citizen households, followed by 1.9 per cent for non-citizen households and 1.4 per cent for share households.

Health expenditure went up by 10.5 per cent in the first four months of this year compared to the same period last year.

Abu Dhabi contributed 56.4 per cent of the total increase of 2.2 per cent in the first four months of this year compared with the period last year, while Al Ain contributed 37.8 per cent and Al Dhafra 5.7 per cent.

GCC inflation to increase this year

GCC citizens should brace themselves for an increase in inflation this year but it bodes well for currencies and import costs, according to experts.

Influenced by internal and external factors, the inflation rate in Arab countries may reach 9.8 per cent and 9.6 per cent in 2017 and 2018 respectively, the Arab Monetary Fund predicted in its latest Arab Economic Outlook (AEO) report.

The report said 2016 saw a rise in inflation rates in the Arab countries as a group to roughly 8.4 per cent, compared with the approximately 6.6 percent recorded during 2015.

The report said: “This increase reflected the effect of reforms adopted to rationalise subsidy systems, especially for fuel and energy products in most of the Arab countries, as well as the impact of measures that have been taken by some countries to rationalise imports of luxury goods due to of pressures on the exchange rates. The inflation rate in 2016 was also affected by the internal conditions in some countries and their impact on the supply of goods and services.”

Explaining internal and external factors that affect inflation in Arab countries, the AMF said: “Internally, the general price level will be impacted in some Arab countries by the continuation of reforms aiming at rationalising subsidy systems, the adoption of value-added taxes, as well as the tendency towards imposing taxes on harmful goods. On the other hand, the expected improvement in the agricultural production will mitigate part of the inflationary pressures in some Arab countries.”

About external factors, it stated the inflation rates will be influenced by the expected increase in international oil prices, in line with the agreement between the main oil-exporting countries to adjust production, as well as the expected increase in the dollar value against the other major currencies, which will reduce the value of imports in Arab countries adopting fixed exchange rate regimes against the dollar.

How will it affect you?

Economists at Citi Research, in the Middle East Economic Outlook report, forecast a ten per cent appreciation of the dollar against the euro, partly due to the expected fiscal stimulus and rising rates under a Trump administration.

Here are some of the ways an increase in inflation may affect everyday lives of GCC residents:

1. The report forecasts an increase in oil prices.

2. Economists do not anticipate changes in the GCC foreign exchange policy in 2017.

3. GCC currencies are pegged to the dollar, meaning that these too will strengthen in 2017.

4. Stronger currencies deter foreign direct investment (FDI) flows as operating costs for foreign companies rise.

5. Terms of trade have improved by 61 per cent since the start of the year, according to the report. It is a precursor to a higher standard of living and stronger economic growth, particularly in the GCC where most domestic consumption is dependent on imports.

6. GCC terms of trade are expected to improve by almost 90 per cent by the end of 2017, the report says.

7. Fixed income groups will be affected because their salaries will not be revised to include the cost of living even as prices of items soar.

8. A higher rate of inflation can make repaying loans easier because they can end up paying back less money if the interest rate is lower than the rate of inflation.