Inflation in the UAE

United Arab Emirates is one of the leading influential oil producing countries. Its main revenue is generated from oil trading since it’s the main resource in the nation. The global economic financial crisis between 2007 and 2008 that began in the U.S and Europe did not spare UAE economy. Following the economy’s relation with the western nations (mostly the US and Europeans) through trading, the foreign nations decline in purchasing power resulted to sharp drop in oil prices. In UAE, as a member of the GCC countries, inflation rates appear to be positively associated with petroleum prices where high oil prices lead to increased spending higher liquidity and increased domestic demand which contribute to even higher inflation (MacDonald  and Al Faris 19).  The pattern of inflation between 1980 and 2008 indicates that UAE faced a double inflation rate in the last period, when compared to the 1980 to 2000 period. For the last three decades, UAE mean inflation criteria in 1980 to 1990 was 3.66, from 1990 to 2000 it ranged 3. 65 while in 2000 to 2008 it hiked to 6.22 (MacDonald and Al Faris 19). Besides the global financial crisis, the correction of the Dubai property market also contributed to inflation level in the country.  As from 2008, major sectors’ prices continue to decrease at different ranges leading to a recovery in the economy (International Monetary Fund 5) (see fig. 1).

 

Fig. 1.  CPI inflation, 2009-12; International Monetary Fund. “United Arab Emirates; Staff Report for the 2012 Article IV Consultation”; Imf.org; 27April  2012; Web; 3 November 2012.

 

The causes of inflation as of 2009 was associated with  restricted access in the housing market, and increased population growth, connected to the weakened foreign currency, profuse liquidity, a surge in the entire government spending and high global food prices during the time. Judging from its impact, increase in public spending and decline in revenues resulted in a depreciation of the consolidated fiscal position from a surplus of 21% in GDP in 2008, to balance in 2009(Carlos 64).  Following the inflation, the government has focused on restructuring the economy to boost investment, improve business climate and emergence of a more vibrant private sector (“United Arab Emirates,” heritage.org).  The economy seems to be regaining its stability in the general open trade system. Inflation in Abu Dhabi which is the leading high oil producer in UAE dropped from 14.9 % in 2008, 0.8 % in 2009 and 3.1 % in 2010 (“Abu Dhabi’s Economic,” adced.ae).

MacDonald, Ronald, and Al Faris Abdulrazak. Currency Union and Exchange Rate Issues: Lessons for the Gulf States. Cheltenham: Edward Elger Publishing Limited, 2010. Print.