United Arab Emirates: Consumer prices tumble sharply in January owing to high base effect from VAT introduction

Consumer prices fell 0.12% month-on-month in January, improving from the 0.31% decline recorded in December. The January print came on the back of lower prices for transportation; housing, water, electricity and gas; and clothing and footwear, which were partially offset by rising prices for food and beverages; restaurants and hotels; furniture; recreation and culture; and communications.

In year-on-year terms, consumer prices plunged 2.4% in January, markedly contrasting the 0.3% print registered in December. The sharp decline observed in the month was largely due to a steep base effect, as the government had introduced a 5% Value Added Tax in January 2018, which was progressively absorbed by the economy over the following months.

United Arab Emirates Inflation Forecast

FocusEconomics Consensus Forecast participants expect inflation to average 2.0% in 2019, down 0.1 percentage points from last month’s forecast, and 2.4% in 2020.