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Inflation rates in Dubai, UAE

Inflation rates in Dubai, UAE - Makebiz

The United Arab Emirates, a country of luxury and high technology, is not immune to global economic fluctuations. While the UAE has experienced steady economic growth, inflation remains an important factor affecting the well-being of the population. Understanding its characteristics requires a deeper dive than simply looking at the numbers. At the end of summer 2024, inflation stood at 3.38%. However, this figure is just the tip of the iceberg.

A key feature of Emirati inflation is its reliance on features not directly controlled by the Central Bank. This is explained by the structure of the consumer price index (CPI), where the lion’s share (more than 60%) is represented by goods that are consumed in the same region without participating in foreign economic activity. Of these, real estate occupies a whopping 39%, making this market one of the main drivers of inflationary processes. Any increase in the prices of construction projects will inevitably affect the overall inflation rate.

The remaining 37% of the CPI basket is formed by traded goods, and their pricing is directly linked to the nominal effective exchange rate (NEER). Changes in the exchange rate of the dirham against other currencies have a significant impact on the cost of imported goods and hence on overall inflation.

Unlike many countries, the UAE does not have an official inflation target. Nevertheless, the CBUAE monitors this indicator closely, recognizing its importance to economic stability. Historical analysis shows significant fluctuations: the average inflation rate from the 1990s to the present has been 1.73%, with a peak of 12.30% (late 2008 — the period of the global financial crisis) and an extreme low of -2.71% in May 2020 (the start of the COVID-19 pandemic).

However, the accuracy of the inflation measure itself is questionable. CBUAE faces a number of methodological challenges. By conducting a study of consumer spending, one can conclude that sampling methods are limited, and this leads to biases: 

  • substitution — changes in consumer preferences in response to price changes;
  • quality adjustments — difficulties in accounting for changes in the quality of goods;
  • new products — the introduction of new products to consumers, and others. 

Little information on sampling methods, coupled with the short tracking time of the data, means that it is not yet possible to estimate these biases.

Also important to the analysis is the fact that a significant portion of the consumers’ basket of goods has prices that are set by the government or regulatory agencies. At this stage, these prices are treated in the same way as prices for other goods, without special adjustment, which may distort the real picture of inflation.

All these factors point to the complexity and multifaceted nature of the UAE’s inflation problem. Although the numbers appear relatively stable, they mask numerous methodological complexities and the influence of factors beyond direct control. Further research and improvement of data collection and analysis methods are needed to better understand inflationary processes and develop effective measures to regulate them. Only then it will be possible to talk about a truly objective assessment of the economic situation in the UAE and making informed decisions.

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