‘Although monetary authorities may well congratulate themselves in combating ‘official inflation’, the current sharp increase in rentals, which forms the single largest constituent of the CPI [consumer price index] at 36.1 per cent, raises considerable fears over the exact market rate of inflation,’ the report said. NBD estimated that in the first half of 2005, annual rents in Dubai rose by 40 per cent, giving it ‘possibly the fastest inflation rate in the world for accommodation’.
The other main inflationary pressure has been the 30 per cent increase in petrol prices, announced in September, which besides its direct impact, has led to higher raw material and transport costs.
NBD said that rising inflation, which was officially estimated at 3.6 per cent in 2004, could result in a deterioration of retail credit quality and hit economic diversification efforts. ‘If current inflationary pressures are left unaddressed, we could see serious repercussions on the UAE’s long-term economic growth,’ the report warned.