Food prices on the rise in the UAE

Dubai: Essential commodities in the UAE have become dearer by one or two dirhams in the last three months.

Prices of essential commodities have crept up gradually, so much so that it is difficult to notice the rise.

While the prices of fresh milk, yoghurt, meat and chicken have registered no major change, prices of fresh vegetables have gone up by two to three dirhams per kilo.

The wholesale vegetable market from Oman has been closed for undisclosed reasons for the last month meaning fresh vegetables are only available from other countries like Jordan and Tunisia.

What looks like a minor tweak in prices actually goes on to impact the cumulative bill when you end up paying two dirhams extra for each commodity.

The other trick many supermarkets have adopted is keeping prices unchanged for commodities like cooking oil but reducing quantity. Vegetable oil in most of the supermarkets is now available in 1.8 litre packs instead of the usual two litres. The quantity has shrunk but prices have remained the same.

The only saving grace is the shopping at cooperative supermarkets that not only sell bulk items, thus keeping prices low, but also charge at least 10 per cent less than other supermarkets.

Substantial savings are on offer if you discard branded tea, coffee, sugar, rice and cooking oils and opt for the cooperative’s products.

On a broader scale, consumers are not hallucinating about the price rise as it is for real.

“In the past three months the Consumer Price Index (CPI) for UAE has increased 1.21 per cent and for Dubai 1.1 per cent," said Cedwyn Fernandes, Associate Professor of Economics at Middlesex University Dubai.

"The August year on year increase has been 2.42 per cent for the UAE and 3.53 per cent for Dubai.

"These increases have an impact on consumers as a majority of consumers are on fixed salary contracts with no salary increases to compensate for the erosion of their purchasing power due to inflation."

So, keep your wits about you when you shop and be a hard-nosed bargainer, picking up the bulk deals at cooperatives if you want to keep your budget on track.

Ask the expert

Although there has been a definite spike in the Consumer Price Index, Cedwyn Fernandes, Associate Professor of Economics at Middlesex University, lists the reasons for the price rise and is optimistic that there is a definite chance of inflation cooling down in the UAE.

Q: In the last three months the inflation rate had increased by 0.74 per cent, housing and utilities 1.3 per cent and food 0.67 per cent. What has the current spike been since then?

The main contributors to the increase in the CPI in the UAE in the past three months has been an increase of 2.81 per cent in food and non-alcoholic beverages. Within this category, fish has increased by a whopping 7.75 per cent and vegetables by 4.09 per cent. This was balanced out by a drop in cereal (wheat, rice) of 2.62 per cent. The Dubai CPI was impacted by a 1.59 per cent increase in rent and utilities and this has a major impact as this category has a 43.70 per cent weight in the CPI.

Q: What do you think is the reason for this and how has it impacted UAE residents?

The rise in the CPI in the UAE from August 2012 to 2014 was a modest 3.71 per cent. Consumers may have been impacted much more than what this figure indicates as it is not clear when the increases in rent which began some time last June will reflect fully on the CPI.

Q: Food prices are likely to be governed by the seasons and the demand. Could Eid Al Adha celebrations have led to any increase in food prices?

Food prices in the UAE are not impacted by seasonal demand as in an open economy like the UAE, importers increase supply to meet anticipated increase in demand.

Q: What is the prognosis for the coming months?

UAE inflation is expected to cool down due to the following reasons:

• The rental market has stabilised in the last few months. This is a result of additional supply of mothballed projects coming into the market and a cooling down of new residents coming into the country. This will take off again when, in the next six months, new Expo 2020 infrastructure projects, which are currently in the planning stage, start getting implemented.
• The dollar index: A measure of the value of the US dollar relative to the majority of its most significant trading partners has increased by 4.17 per cent. The UAE dirham which is pegged to the US dollar would also strengthen, making imports cheaper from non-dollar denominated countries.
• The FAO Food Price Index averaged 196.6 points in August 2014, its lowest level since September 2010. In August, the index registered its fifth consecutive monthly decline, down 3.6 per cent from July and 3.9 per cent from August 2013.
• Oil prices are down to $93.07 which will reduce the cost of transportation of food and non-food products being imported into the UAE.
• Reciprocal sanctions by Europe and Russia will have a dampening effect on prices.
• Slowing in the Chinese economy growth rate will dampen demand and subsequently prices.

All of this is assuming that the conflicts in Syria and Iraq do not escalate, leading to increase in oil prices and its impact on costs.