Dubai Inflation Eases in July Following June Peak Driven by Global Energy Pressures

Dubai inflation rose by 5.33 per cent on an annual basis in July, coming in lower than its peak in June as the US-Iran war continued to drive up prices for fuel, transport, and imported food. This consumer price increase was slower than the 5.7 per cent annualised rise recorded in June, which marked the highest level for the year.

Dubai's biggest lender, Emirates NBD, expects this downtrend to broadly persist through the second half of the year. “We think June marked the peak in inflation, with price pressures likely to ease over the coming months,” said Nick Stadtmiller, Emirates NBD chief economist, in a joint research note with senior economists Daniel Richards and Jeanne Walters.

In July, the transport division recorded the highest increase at 11.9 per cent. According to the Dubai Data and Statistics Establishment—part of the Dubai Digital Authority—this was driven by a 41.4 per cent surge in passenger transport by air, alongside a 24.14 per cent jump in fuels and lubricants for personal transport. However, annual price growth in the transport category was slower than June's 18.1 per cent increase, with costs falling 3.7 per cent on a monthly basis.

Consumer price increases in Dubai have been driven largely by the transport segment, which accounts for 9 per cent of the emirate's Consumer Price Index basket. Emirates NBD noted that changes in fuel prices are critical for headline inflation. Petrol prices in the UAE, which have been unsubsidised since 2015, are evaluated monthly based on global oil price movements.

The UAE has experienced a sharper upward trajectory in consumer prices compared to Gulf peers like Saudi Arabia, where the state sets fuel prices. Although global crude prices surged nearly 109 per cent during the peak of the war compared to the start of the year and remain about 50 per cent higher, price controls have helped keep annual price gains in Saudi Arabia below 2 per cent in July.

“Saudi Arabia is the clearest example of state-set prices blocking a key inflation channel,” Emirates NBD stated, noting that while petrol accounts for 4.6 per cent of the Saudi CPI basket, domestic prices have not risen this year despite the jump in global oil costs.

While a drop in UAE petrol prices during July helped reduce Dubai’s inflation, upcoming fuel price increases in August could drive rates slightly higher in the short term. Meanwhile, Dubai's economy has largely resisted analyst predictions of a slump, supported by resilient housing sales and steady or increasing rents upon renewal.

Government data shows that the food and drinks division recorded a 7.81 per cent annual increase last month, while housing, water, electricity, gas, and domestic fuel rose by nearly 7 per cent, driven largely by growth in average residential rental prices across most areas of the emirate.