UAE Inflation Forecast to Fall

Inflation in the UAE will fall from a 19-year high to an average 5 percent in the next five years as housing supply constraints ease, the Dubai Chamber of Commerce and Industry said.

Inflation would slow to 3.4 percent in 2012 as "government fiscal expenditure restraint and the easing of housing shortage" take pressure off price rises, the chamber said in a report, citing International Monetary Fund forecasts.

Prices in the second-largest Arab economy rose 9.3 percent in 2006, the fastest pace since at least 1988.

UAE inflation will accelerate to 10.1 percent this year before easing to 8.9 percent in 2008, a Reuters poll of 12 economists showed this month.

"The danger of such high inflation is the risk of undermining the competitiveness of the economy and therefore jeopardising the long-term growth prospects of the economy," the chamber said.

Reducing inflation and addressing exchange rate policy are among the main issues facing policymakers in the country, it said without elaborating.

Like most Gulf Arab oil producers, the UAE pegs its dirham currency to the dollar, forcing it to follow US monetary policy at a time when the Federal Reserve is cutting rates to contain the fallout of a mortgage crisis. - Reuters