UAE recorded 11.1 percent inflation rate in 2007: Economy minister

The United Arab Emirates last year recorded an inflation rate of 11.1
percent, it was announced by the Economy Minister, Sultan bin Saeed
Al-Mansouri.

The figure, which reflects increase in prices of goods and
services last year, is calculated by measuring the percentage change in prices of a representative basket of goods and services consumed by the average UAE household throughout the country.

The Minister highlighted the importance of the inflation index, which is
based on the consumer price index, as one of the tools that is widely used
by government in drafting policies pertaining to salary and wages in
addition to making necessary adjustments to consumer income (such as
transfer payments made to social welfare recipients). Moreover, this
indicator is essential for consumer protection analysis.

Analysis conducted by the Consumer Price Index Division of the Ministry of
Economy indicated that inflation, in 2007, was a result of the rise of
consumer prices in all expenditure groups at varying levels. The "House Rent
and Related house Items" group recorded the highest increases amongst all
groups at an increase of 17.5%, followed by "Other Goods and Services" at
16.8%. The increase in average prices of other expenditure groups ranged
from 3% to 8%.

The "House Rent and Related house Items" group has the highest weight, in
any year, in the Consumer Price Index (36%). If one considers the actual
contribution of the expenditure groups in the inflation figure for 2007. One
finds out that the "House Rent and Related house Items" group was the main
contributor towards inflation, contributing 6.5% towards the total inflation
figure of 11.1%, or about 58.6% of the total figure. The "Other Goods and
Services" group followed (1.4% towards the total inflation figure of 11.1%,
or about 12.8%). The contribution of each of the other expenditure groups,
to total inflation, was less than 1%.

It is clear from the preceding analysis that the increase in the prices of
rent and related house items was the main cause of inflation in 2007. This
increase has been driven by two basic factors: the large increase in rental
prices in 2007 and the large weight that this group carries in household
expenditure.

The Minister of Economy indicated that the Consumer Price Index, which is
used to measure inflation, has been based on a consumer basket that was
derived from the results of the Household Expenditure and Income Survey
conducted in 1997. Therefore, this index is outdated since several goods and
services, currently consumed by average households, did not exist back then.
Consequently, the Ministry established, in Joint Coordination with the IMF,
the Consumer Price Index Division within the Ministry with the intention to
develop and upgrade the system. The scheme includes several phases, most
important of which is the recent Household Expenditure and Income Survey.
Results of this survey, once available, will be used to construct the new
consumer basket, which would better reflect the prevailing patterns of
consumption in the UAE. It is expected that monthly inflation figures, based
on the new consumer basket, will be available early 2009.

Local governments are attempting to contain inflation by capping annual
rental price increases at various levels. Moreover, the Ministry of Economy
has taken several steps over the last few months. Through discussions with
major distributors (cooperatives as well as private retailers), it has
managed to fix the prices of basic commodities. These commodities constitute
around 70% of retail trade in the UAE. Furthermore, and regarding the
construction sector, the Ministry signed a Memorandum of Understanding with
various local cement producers to increase production and therefore reduce
prices of building materials. Finally, the Ministry exempted cement and
steel from custom duties at all UAE ports. - Emirates News Agency, WAM