UAE housing market feeds spiralling inflation

Inflation in the oil-rich United Arab Emirates, where the consumer prices index has sharply increased over the past few years, hit 10.9 percent in 2007, an official study said, pointing to the surging cost of house rentals.


Consumer prices in Abu Dhabi, the wealthiest of seven emirates forming the UAE, increased by 11.5 percent in the first quarter of 2008 from 10.7 percent a year earlier, Abu Dhabi's Department of Planning and Economy said.

The study blamed the increase in UAE and Abu Dhabi inflation mainly on the surging cost of house rentals, the official news agency WAM said.

It slammed a UAE central bank policy of copying decisions taken by the US Federal Reserve reducing interest rates instead of tightening the monetary policy in the robust UAE economy. The dirham is pegged to the dollar.

"It is unreasonable that local interest rates would increase or decrease for external reasons, most importantly the policies of the US Federal Reserve, when the indices of the UAE economy imply that the opposite is needed," WAM quoted the study as saying.

The last official inflation figures provided by the ministry of economy pertain to 2006 putting it at 9.3 percent. Inflation figures for 2005 were not provided, but the International Monetary Fund put it at 7.8 percent.

The UAE sits on 97.8 billion barrels of oil reserves, which are ranked as the fifth largest in the world. Its economy is estimated to have grown by 7.4 percent in 2007, according to the IMF.

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