Saturday, June 24, 2006

UAE's inflation rate is 15 to 20% :: Gulf News

Dubai: The UAE's GDP grew by 8.5 per cent in real terms in 2005 due to strong growth in non-oil sectors, according to the International Monetary Fund.
. . .
The numbers reflect the real GDP for 2005 after accounting for a rise in prices due to inflation. The IMF estimated inflation at 8 per cent but noted it may be higher.

The UAE Ministry of Economy recently said the country's nominal GDP grew by 26.4 per cent last year, without spelling out the rate of inflation. Local economists point to anecdotal evidence suggesting the inflation rate to be between 15 and 20 per cent.
Back on June 13, Khaleej Times reported:
ABU DHABI — The UAE economy recorded significant growth during the year 2005 as GDP surged to Dh485 billion, registering an increase of 26.4 per cent over the same period in 2004, an official report said.

Economic Performance Report released yesterday by the Ministry of Economy and Planning showed all round growth particularly in the non-oil sectors, which showed a surge of 18.6 per cent to Dh312 billion from Dh263 billion in 2004. Its contribution to the GDP stood at 64.3 per cent last year.

The report has attributed the high GDP growth to the success of the UAE's policies which aims at establishing a strong diversified, viable economy.
No mention of inflation was made in the KT article.

Can the high GDP growth be attributed "to the success of the UAE's policies which aims at establishing a strong diversified, viable economy"? Not really. That may be a part of the story, but not the major part. More important are (1) growth in oil revenue driven by growth in oil prices in turn driven by the growth in the Indian and Chinese economies, and (2) inflation.

To sum up:

(1) We can attribute much of the growth in UAE GDP to economic liberalization in other countries that has driven up the value of a resource that happens to be located under the UAE; and

(2) Double digit GDP growth is very difficult to achieve. Except when there is inflation. Then it is dead easy.

Thanks to a reader for alerting me to the Gulf News article.



Blogger uae alias said...

I was suprised coz the declared one was 6%... but I knew it must be larger due to the excess amounts of foriegn workers in the country... beside we have a HUGE problem that our currency it tied with the dollar which deter more effcient ways to confront the inflation, so a carefull govermental spending rates should be considered as i believe.

4:27 PM  
Blogger grapeshisha said...

Excellent two point summary of the inflation issue. I wonder if anyone has thought of stripping out either oil related or western demand driven goods, readjust other figures to calulate on some other pure numbers. A tall exercise, but one that might demonstrate some plausability. I'm sure a book could be written on the numbers game in the UAE.

2:45 PM  
Anonymous Anonymous said...

Anyone that reads the officially declared figures is fooling themselves. Just walk about and buy things --- the same things each month. You'll see what inflation is.

The biggest source of inflation, to my mind, is the unsustainable, irrational exhuberance in the housing market.

Even if everything else in my market basket remained fixed in price - the price of housing alone would raise my market basket 5-6%.

Not sure I'd attribute inflation to foreign workers --- most of whom can barely afford to pay the prices that are already in place.

11:40 AM  
Blogger Risala said...

Now the price increase is common in UAE. We are seeing the changing/increasing prices for Milk Powder, Rice etc. Some studies surveys in . Please visit and comment

1:42 AM  
Anonymous Anonymous said...

For sure, it is much higher. Accomodation alone increased more than 100%, education increased more than 100%,groceries increase 30% each month, fuel increased more than 10%.Office rents are more than 3500 aed/m square. The cost of living is unbereable and will continue on increasing.Moreover, as an expatriate there is no public benefits. The inflation is way too under estimated, people are not fooled with such unrealistic low inflation figures.

3:08 AM  
Anonymous rate said...

This can't be good news, in any case. A moderate inflation rate is thought to be normal and even beneficial, but if it crosses a certain limit, usually 10%, the effects are mostly negative, on the entire economy and especially on consumers.

2:23 PM  
Anonymous rate said...

Still, some countries face even higher numbers of inflation.

5:02 PM  
Blogger Parag said...

I believe that UAE's economy grew atleast by 15-18% if not more.
The rate of development of infrastructure and real estate is quite astonishing.
rate of inflation

3:06 PM  
Anonymous Saving Tips said...

According to me The primary source of the UAE’s rapidly growing tourism sector is the Dubai Emirate, which hosts the world’s tallest hotel. It has seen dramatic growth in hotel revenue (a 42 percent increase from 2003 to 2004) and reports hotel occupancy rates over 80 percent. The emirate hosted 5.5 million visitors from India, Pakistan, Iran, Lebanon, the Philippines, Europe, Australia, and South Africa in 2004, two-thirds of whom were traveling for business purposes. The main attractions for tourists are beaches, nightlife, shopping, and luxurious accommodations. Dubai has grandiose plans for the future—the building of four man-made island structures off the coast (valued at US$3 billion each) that will house more than 100 new hotels, as well as residential villas and apartments.

10:25 AM  

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