Dubai inflation numbers down in July: Is a rate cut on the horizon?

Dubai’s inflation rate has shown signs of cooling, with the latest figures for July 2024 indicating a drop to 3.32 per cent, down from 3.85 per cent in June, according to the latest data from Dubai Statistics Centre. 

This marks the lowest inflation rate recorded in the emirate since the start of the year, raising speculation about the potential for an interest rate cut in the near future.

A mixed inflation landscape

Dubai’s overall inflation rate remains comparatively low when measured against other major cities in the region, a testament to the government’s effective management of price stability, noted the report. 

The emirate’s economy has continued to demonstrate resilience despite global inflationary pressures, buoyed by diversified sectors such as tourism, real estate, and trade. 

What’s up?

The housing, utilities, and fuel sector, which constitutes a significant portion of Dubai’s Consumer Price Index (CPI), saw a 6.76 per cent year-on-year increase in July, up slightly from 6.66 per cent in June. This sector has been a major driver of inflation throughout the year, reflecting the ongoing rise in housing costs within the emirate.

Additionally, food and beverage prices saw a modest increase of 2.46 per cent in July, up from 2.35 per cent in June, signalling ongoing volatility in essential goods. 

Meanwhile, prices in the clothing and footwear sector also rose, albeit marginally, by 0.96 per cent in July following a 0.91 per cent increase in June.

What’s down?

In contrast, certain sectors experienced price declines. Notably, the tobacco sector registered a 3.63 per cent drop in July, maintaining the same rate of decline as observed in June. 

Similarly, the recreation, sports, and culture sector saw a decrease of 2.42 per cent in July, a sharp turnaround from the 1.5 per cent increase recorded the previous month. 

The information and communication sector also posted a 2 per cent decline in prices, following a slight increase of 0.02 per cent in June.

Consumer prices

Dubai’s CPI moved down marginally to 111.56 points in July from 111.65 points in June, according to the Dubai government data. This slight decrease reflects the broader easing of inflationary pressures across the emirate, although the impact varies significantly between different sectors. 

The property market in Dubai continues to thrive, supported by government initiatives such as residency permits for retirees and remote workers, as well as the expansion of the 10-year golden visa programme. 

These measures, along with the UAE’s broader economic diversification efforts, have been pivotal in sustaining the property sector’s growth.

The latest data from the Dubai Statistics Center underscores the emirate’s economic momentum, with Dubai’s economy expanding by 3.2 per cent annually in the first quarter of 2024.

This growth has been driven primarily by the transport, storage, financial, and insurance sectors, which collectively added Dhs115bn($31.3bn) to Dubai’s gross domestic product during the period.

Anticipating monetary policy shifts

As inflation trends downward, speculation about an imminent rate cut by the Central Bank of the UAE (CBUAE) is gaining traction. 

The CBUAE has kept its key policy rate unchanged at 5.4 per cent since July 2023, aligning with the US Federal Reserve’s interest rate policy. With inflation projected to average 2.3 per cent in the UAE for 2024, driven by moderate increases in commodity prices, wages, and rents, there is growing anticipation that the CBUAE may consider easing monetary policy to further support economic growth.

The outlook for the UAE’s economy remains robust, with indicators such as the Purchasing Managers’ Index (PMI) pointing to sustained activity in the non-oil private sectors. In April 2024, Dubai’s PMI stood at 55.1, reflecting consistent growth in the emirate’s economy. 

Additionally, employment and wage growth continue to show positive trends, further supporting domestic consumption and overall economic stability.

Global context: US inflation and Federal Reserve actions

The situation in Dubai mirrors broader global trends, particularly in the US, where inflation reached its lowest level in over three years in July 2024. In July 2024, core CPI rose 3.2 per cent YoY and headline CPI rose 2.9 per cent YoY in the US.

The US consumer price index rose by just 0.2 per cent from June to July, marking a significant easing in inflationary pressures. 

This decline has increased the likelihood of an interest rate cut by the US Federal Reserve in September, a move that could have ripple effects on global monetary policy, including in the UAE.

As Dubai’s inflation rate continues to ease, the question remains whether the CBUAE will follow suit with a rate cut to bolster economic growth further.

Read: CBUAE keeps rates constant, follows US Fed cue