Wednesday, December 20, 2006

IMF: UAE inflation underestimated

EmiratesToday, December 19:
The UAE’s inflation, which is predicted to be an average of 9.9 per cent in 2006, is being underestimated because it is calculated using an outdated formula, a top IMF official said yesterday.

“Rents are the primary cause of the UAE’s high inflation,” said Moshin Khan, IMF director for the Middle East and Central Asia.

“The influence of rents is being underestimated in consumer inflation. The rent weighting is only 34 per cent in the consumer price index basket, but this is based on a survey conducted in 1994 and the UAE is a very different place today than it was back then,” he added.
Specifically, the UAE is a different place because rent is more than 34% of the typical consumer spending, and rents are rising faster than the prices of other goods.

Khaleej Times:
The International Monetary Fund (IMF) yesterday said it was concerned about the lack of any official data in the UAE to monitor inflation.

Mohsin Khan, Director of the IMF's Middle East and Central Asia Department, said despite achieving remarkable economic growth and all-round buoyancy, the UAE "lags behind most other developing countries, even Yemen, in providing a consumer price index (CPI)," which makes it difficult to gauge the country's real inflation rate.

"We are surprised at this shortcoming. Like all other economies, the UAE must have a monthly consumer price index that will help monitor and control inflation," he said when asked if the UAE Central Bank's inflation rate of nine per cent was realistic.

The Governor of the Central Bank of the UAE, Sultan bin Nasser Al Suwaidi, on Sunday said inflation is currently around nine per cent due to rising rents which has a weighting of 30 per cent in the consumer price index. However, some economists and analysts hold a different view and believe that the underlying inflation in the UAE is between 18 per cent and 20 per cent.
The emphasis is mine.

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