Factors influencing UAE in the last ten years

The economy of UAE exhibits an open capital account. With restraining foreign exchange
rates, the economy has very restricted scope for the facilitation of an independent monetary
policy. The global recession in 2008 impacted almost all of the developed and developing
countries in the world including the UAE. A significant impact of such crisis was however
envisaged in the form of lowering of the inflation rates from 12.3% in the year 2008 to 1.5%
in the year 2009 according to the UAE National Bureau of Statistics (Tradingeconomics.com,
2019). The highest rates in years exhibited during the 2008 financial year has been attributed
to the weakening of the dollar during that time which resulted in the high inflation attributed
to a sharp increase in rents and global; food prices and the increase in the value of imports.
From a theoretical perspective, the inhibiting factor behind inflation is through the increase in
the aggregate demand. This may in turn be attributed to factors such as a rise in the money
supply, increased government expenditure, expanding of the exports industry. As per the
macroeconomic theory, the inflation is occurred for the increase in aggregate demand.
However, this type of inflation is known as Demand-pull inflation. This increase of in
aggregate demand due to the several factors such as an increase in the money supply, increase
in government purchases and an increase in exports (Scales, 1993). The reason of increased
export impact on the inflation rate is it is a global demand on respective gross domestic market.

Besides, the inflation rate can also be occurred by increase product cost and that is known as
cost-pull inflation. The increase in money wage rates and increase in money price of raw
materials. In 20008, UAE reached at 22.9% inflation rate and the reason is increase price of
raw materials, oil and imports in case of depreciation of US dollar exchange rate (Alkoumand
Agil, 2013). The governmental policy of investment on different sectors of sectors of economy
especially in oil and gas industry can leads to the growth of economy that is help to reduce the
inflation rate.

These factors are particularly relevant to the economy of UAE being overly an oil exporting
country. According to Ossman (2016) study, the UAE as the second largest economy in the
Middle East has developed globally in terms of emerging as a competitive global economy.
Characteristic elements of the economy which makes it more susceptible to sustained inflation
can be attributed to the high volumes of trade surplus per year, a high per capita income and
significant amount of government expenditure on various sectors of development particularly
the non-oil sector. on the A cost push inflation can also occur if the production costs are
increased. This may be due to the increase in the money wage rates or an increase in the cost
of the raw materials used in production (Ossman, 2016). According to the Head of the MENA
Research at Emirates NBD, the sustained inflation in the economy is attributed to the increasing
housing costs during the time of the last couple of years. This increase in the housing cost has
been regarded as the fundamental factor that drove the sustained inflation in the UAE and can
be categorized as a cost pull inflation characterized by the increase in the production costs over
these years. The disintegration of such costs at the national level, housing and utility costs that
has been attributed toward more than 39% of the consumer expenses also went up by 2.4%
from 2012 to 2013 (Al Bawaba, 2019). Furthermore, the prices of food and soft drinks also
went up led to an increase of 2% in the inflation rates. The construction industry trends are also
a significant factor in the sustained inflation rates of the UAE. Due to increasing investments
and construction projects going on, the economy of UAE is facing a strong rebound. The
increasing demand is leading to another significant drive to the input prices. These trends
relevant to the consistent growth in the economy is attributed to a further increase of 1%
inflation from 4% to 5%. Emirates 247 also evaluated from the consultancy with financial
advisors and economists that the increase in the property prices in the real estate sector as well
as an increase in rents is also a major cause of the drastic increase in the rates of inflation over
the past few years (Emirates24|7, 2019). These are the main factors that are attributed to the
sustained inflation in the UAE for the last 10 years.

Inflation rate
14
12
10
8
6
4
2
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Inflation rate

UAE Inflation rate in last 10 years

Source: (Tradingeconomics.com, 2019)
References
Al Bawaba. (2019). Why does inflation continue to rise in the UAE? | Al Bawaba. [online]
Available at: https://www.albawaba.com/business/inflation-uae-569786 [Accessed 2 May
2019].

Alkoum, A. and Agil, O., 2013. A Study of the Factors Influencing Inflationary Pressure in the
Libyan Economy.

Emirates24|7. (2019). UAE inflation to remain low for years. [online] Available at:
https://www.emirates247.com/business/economy-finance/uae-inflation-to-remain-low-for-
years-2010-12-11-1.327752 [Accessed 2 May 2019].

Ossman, G., 2016. Economic Indicators in United Arab Emirates: Assessing the Sustainability
of the Country’s Economic Performance. Advances in Economics and Business, 4(5), pp.208-
221.

Scales, P.C., 1993. The Fall of the Caliphate of Córdoba: Berbers and Andalusis in
Conflict (Vol. 9). Brill.

Tradingeconomics.com. (2019). United Arab Emirates Inflation Rate | 2019 | Data | Chart |
Calendar. [online] Available at: https://tradingeconomics.com/united-arab-emirates/inflation-
cpi [Accessed 2 May 2019].