Consumer Index

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This week, the ministry of economy has announced plans to control price increases and encourage competition in the UAE.

The ministry is particularly concerned about the manipulation of prices by retailers and wholesalers in Abu Dhabi during Ramadan. The ministry released a statement detailing their co-operation with Abu Dhabi municipality to monitor and penalise traders who put up prices for the month.

The statement read, "The ministry has been closely monitoring commodity prices across the country and has noted that prices of commodity items have been increased in Abu Dhabi. Commodity items such as meat and vegetables are custom free and there is no need to increase them whatsoever."

The ministry is hoping to induce more competition in the market by issuing a list of the lowest market prices. Hashem Saeed al-Nuaimi, the director of the consumer protection department at the ministry, told local reporters, "The department will publish a weekly list of foodstuff and strategic commodities, highlighting the lowest prices in green, which will prompt the companies that do not make it to the list to offer better prices to compete."

Supermarkets and cooperative societies have already been publishing a price list of 20 basic foodstuffs, which was increased to 26 on September 24. The ministry is working to increase this to 35 by the end of the week and will expand it further in the near future.

Such a move follows the recent announcement that the ministry plans to introduce a consumer protection law creating a consumer protection department with the power to impose penalties for supplying faulty goods as well as regulating suppliers' liabilities. Sheikha Lubna Al Qasimi, the minister of economy and planning, said the law will, "grant full rights to consumers in the process of choosing, buying, exchanging or returning a commodity in addition to other rights granted to consumers by the law".

Meanwhile, the government is trying to address the issues of inflationary pressure that have been affecting consumers in the UAE recently. Rising rents, excess liquidity and imported inflation are all factors driving the trend. The government is attempting to cap prices and develop a more rigorous statistical data collection system.

An IMF report released in July estimated the current level of inflation to be 8%, higher than the government's estimation of 6%. The IMF attributed this to price developments of non-tradables like rents and services, the estimated 34% increase in money supply, and the 31% rise in petroleum prices .

A survey carried out by Standard Chartered Bank released earlier this month placed the rate of inflation in the UAE even higher, estimating that it currently stands at 13.8%. This was based on a staff survey that gathered data on key components of a consumer price index (CPI) including price changes in rent, education and weekly shopping baskets.

The report found that the main driver of inflation was rent increases, which had a knock on effect in the pricing of other services such as school fees. According to the findings, rent increases will contribute 7.3 percentage points or over 50% to overall inflation in the UAE for 2006. However, Standard Chartered believes these pressures will ease with inflation dropping to 9.6% in 2007 and levelling off at 3% in 2008 as more housing units become available.

The government has sought to tackle this problem through legislation within Abu Dhabi that regulates the landlord-tenant relationship, capping rent increases at 20% every two years. However, it is particularly difficult to monitor and implement. There are suggestions that a new tenancy law is in the offing with further suggestions that the 15% rent cap in Dubai will be implemented at a federal level across all the emirates in 2007.

Although it is clear that rent increases are having a considerable bearing on inflation, it is difficult to arrive at precise figures because of the limitation of economic indicators in the country. In June, Sultan Nasser al-Suwaidi, the governor of the Central Bank, indicated that the authorities are not definitely sure of the current level of inflation. The IMF also noted in their analysis of the UAE that there were many shortcomings in the methodology used to construct a CPI, which hampers the ability to assess inflation. Areas of concern were outdated weighting, lack of imputations for missing data, and different reference periods for the base price and expenditure weights.

However, the government is looking to address this issue with the announcement that the ministry of economy plans to develop an accurate official CPI. The ministry began conducting a national survey earlier this month in order to assess spending patterns and price rises. Abdullah al-Saleh, undersecretary at the ministry of economy told local reporters, "Issuing a CPI is a lengthy process, and the most important part of it is assessing accurately the household spending, and accordingly we are launching in September a national survey that will last for a year, as we need to monitor that spending for a sufficient period to reach to a balanced composition for the index. The task force shall be covering at least 15,000 households at the federal level."

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