Food prices jump in July on demand surge

Dubai, Aug 30, 2009 (WAM) - UAE food prices surged in July due to a sharp increase in domestic demand for consumer items ahead of the fasting month of Ramadan that began last week, official figures showed yesterday. Except for cereals and cooking oil, the prices of meat and all other food items included in the Ministry of Economy's consumer price index jumped by between one and 35 per cent last month, the ministry said in its monthly index according to a report in Emirates Business 24|7.
The increase followed a large decline in prices of most food products in the local market in the second quarter of 2009 over the previous quarter as the country is heading for a sharp fall in inflation rates after a peak year in 2008.
The index showed the cereal and bread category declined by about 0.83 per cent while cooking oil and fat dropped by 1.17 per cent in July over June.
But the prices of all other food categories in the index recorded a rise ranging from small increases to medium growth and a record annual rise. The biggest price increase was in tea and coffee, which leaped by 34.65 per cent last month apparently because of a surge in demand ahead of Ramadan.
Meat and poultry grew by about 7.33 per cent while there was an increase of about 5.81 per cent in fish, 4.78 per cent in vegetables, 4.53 per cent in beverages, about 4.51 per cent in sugar and related products, 2.79 per cent in egg and dairy and 1.22 per cent in fruits.
The increase followed a decline of most food items in the second quarter following a steady rise in the previous year because of a surge in global commodity prices and the weakening dollar, to which the dirham is pegged.
The prices of bread, rice, dairy products, cooking oil, tea and coffee recorded their first real quarterly fall during April-June in nearly two years while the prices of food and poultry edged up by less than one per cent. The report showed the prices of sugar swelled by 12.7 per cent in the second quarter while those of fruits, vegetables and beverages grew by between six and seven per cent. Fish prices surged by 9.93 per cent.
It was the first major quarterly fall in key food items since late 2007, when the prices of food, building materials and other products began their rapid increase.
The surge in the prices of food and other products in the UAE allied with a similar increase in rents to boost the inflation rate to a record high of 12.3 per cent in 2008 from about 11 per cent in 2007 and 9.6 per cent in 2006.
In its inflation report this week, the Ministry of Economy said the consumer price index (CPI) rose by about 2.9 per cent in the first seven months of this year while it edged up by just 0.28 per cent in July.
"The increase in consumer prices in the first seven months of 2009 was a result of a rise of about two per cent in the prices of food and non-alcoholic beverages and 9.3 per cent in educational services," said the report.
Economists attributed the sharp slowdown in inflation this year to the strengthening dollar, falling prices of oil and other commodities, a correction in the local real estate sector and waning domestic demand.
In a recent study, the Saudi American Bank (Samba) said the UAE could have a brief period of deflation in some months this year before a recovery in domestic demand and higher import bills push the country back into price growth. "Given that housing costs make up nearly 40 per cent of the basket of goods used to measure the cost of living for an average UAE resident, a brief period of monthly negative inflation is certainly possible later this year," it said.
"However, this is likely to be short lived, and we still expect annual average prices to remain positive at about one per cent. Having fallen sharply, house prices are expected to start stabilising towards the end of the year." –