UAE: Inflation stable in May
Consumer prices fell 0.06% in May from the previous month, a softer decrease than the 0.23% month-on-month fall observed in April. Indeed, after several months of across-the-board price declines, resulting from margin compression from producers following the introduction of a 5% VAT in early January, it appears that prices are stabilizing. This signals that the effect of the VAT introduction is being absorbed by the economy.
The May print was largely driven by price decreases in two main expenditure categories, namely food and beverages; and housing, water, electricity and gas, which combined represent close to half of the weight of the Consumer Price Index. Declines were also registered in the communications and medical care categories. Meanwhile, all other item categories recorded prices increases, with the largest positive contribution coming from transportation. It is worth noting that most of these categories were still recording declines in price as of April, which indicates that inflationary pressures are finally starting to build up after four months of muted developments, as the economy adjusted to VAT.
Meanwhile, inflation was stable at April’s 3.5% in May. Annual average inflation inched up from 2.5% in April to 2.6% in May.