Inflation eating up savings in UAE

Date

10/3/2015 4:03:27 PM

(MENAFN- Khaleej Times)

The sharp rise in rents is not the only reason worrying expatriates in Abu Dhabi. The rising transport costs food and education expenses are also a cause of concern as they struggle to save money.

Rizwan and his wife a working couple from India say their monthly savings is on the decline as living expenses have more than doubled. The couple from Karnataka who have a seven-year-old school-going son is worried about rising expenses and almost stagnant salaries.

Rizwan works for a local private company as an executive a job that earns him Dh10000 while his wife works in the customer service department for another firm for a monthly salary of Dh5000.

In an interview the couple shared their worries on rising expenses which is the pet peeve of every middle class expatriate in the UAE.

"Housing transport food and education expenses eat up whatever financial means we both have and leaves us with a monthly saving of Dh3475 a month. We used to save Dh5325 per month four years ago" Rizwan said.

In the last four years his rent has gone up 52 per cent; education fees/school bus charges have risen 27 per cent; fuel and taxi fares have gone up 100 per cent; food expenses have risen 90 per cent and miscellaneous expenditures which include occasional dining out visits recreation etc are up 50 per cent.

Another Abu Dhabi resident who lives in Mussafah's industrial township complained that the rent of his two-bedroom apartment has gone up 114 per cent in the four years.

He paid Dh28000 for the unit in 2012 Dh30000 in 3013 Dh45000 in 2014 and Dh60000 in 2015.

"I can't manage to pay this high rent anymore" he said. "I am considering to relocate my family to Sharjah where the housing costs are very affordable" he said.

Inflation trends

These are stories that match with the inflation trends put out by the UAE's National Statistics Bureau which last week put the figure at a six-year-high of 4.94 per cent in August.

Carla Slim an economist at Standard Chartered Bank said that Dubai inflation rose on the back of a seven per cent year-on-year increase in housing costs and a five per cent year-on-year increase in food prices.

Early this month Sultan bin Saeed Al Mansouri UAE Minister of Economy predicted inflation at two to 2.5 per cent for the year over two per cent in 2014. Masood Al Awar chief executive officer of Abu Dhabi's Tasweek Real Estate Development and Marketing said rents were rising much faster than salaries which have not risen more than 20 per cent in the last four years.

"Four years ago people used to spend 30 to 40 per cent of their salary on rent; now they pay almost 50 per cent" Al Awar said.

One reason behind the rise in rents is that landlords are seeking higher investment yields of 10 to 15 per cent on their properties he said.

Slim said: "Historically housing has been a key inflation driver in the UAE albeit with a lag. Inflation statistics have been slow to capture the rise in rents that started in 2011-'12. The seven per cent year-on-year increase in housing costs is a reflection of the housing market expansion of the past two to three years." Apart from rents transport charges food prices and even education expenses are bothering consumers.

Food price rise

Food prices have been on the rise since 2011-'12 for a variety of reasons: lower output floods heavy rains and the supply and demand situation in the economies of food-producing countries.

The breakout of the Syrian civil war four years ago was an additional factor that had ramifications on UAE food prices. The Levant nations of Syria Lebanon and Jordan who used to feed the GCC with fresh tomatoes potatoes and salads could not continue to export as the conflict worsened.

As a result the prices of tomato have doubled to Dh4.5 to Dh5 a kilogram from Dh2.25 per kg since supplies from Jordan have reduced to negligible levels since the nation has to feed more people coming from conflict zones.

Similarly prices of Indian onion which were in the range of Dh0.90 to Dh1 a kg have risen to Dh1.50 to Dh2.5 per kg due to supply situations and other local issues.

"These vegetables along with apple orange and banana have a 90 per cent weightage on the fresh food basket we consume on a daily basis. The rest contribute only 10 per cent. So any price fluctuation is noticed" said Wissal Ahmed Khan CEO of Alam Cash and Carry a retailer.

Also Saudi Arabia a top producer of potato put a ban in 2013 due to which the commodity's price rose to Dh3.5 a kg from Dh2 to Dh2.5 a kg in retail.

With disturbances in the supply chain import orders were diverted to India Pakistan Egypt Netherlands China and Malaysia which added additional costs.

Fuel costs

The imported food is transported across the country by freighters which did not pass on the reduction in diesel prices announced in July and August.

On September 28 diesel price was hiked 1.6 per cent to Dh1.89 a litre while petrol prices were revised down by eight to nine per cent as the fall of oil prices continued on international markets.

After three interventions in July August and September the diesel price has dropped 19.5 per cent to Dh1.89 a litre and petrol 95-Octane price is up 15.5 per cent.

The recent increase in petrol prices hiked fuel costs for consumers who were expecting some relief after the heavy cuts in diesel prices.

These hikes will likely have a one-off upward impact on inflation as the initial price increase closes the gap between subsidised and newly deregulated prices. "We expect higher fuel prices to feed through to the average inflation in 2016 rather than 2015 since the new prices were implemented" Slim added.

However the good news is that rents are likely to stable in the next two quarters Al Awar said.

In July property consultancy JLL said 6000 new housing units are expected to enter the Abu Dhabi market in The Views in Saraya Hydra Avenue and The Wave on Reem Island C59 in Rawdhat and Amwaj 2 in Al Raha Beach.

Another positive news is that Oman's vegetables will hit the market this month and will lower prices by up to 15 per cent.

Onion prices would remain stable along with potatoes Ahmed Khan said. At the start of the season prices are low and rise due to storage and finance costs.

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