Charts & Numbers

The United Arab Emirates Ministry of Economy has set a ceiling on the maximum price retailers are allowed to charge for some basic food items to help stabilise price rises, a newspaper reported on Sunday.

The Emirates Society for Consumer Protection said last week food prices in the second-largest Arab economy, which pegs its dirham currency to the dollar, could surge 40 percent this year after jumping 30 percent in 2007.

Inflation in the UAE hit a 19-year peak of 9.3 percent in 2006 and probably accelerated to 10.9 percent last year, National Bank of Abu Dhabi said last month.The Ministry of Economy set maximum prices for items like eggs, chicken, Basmati rise and water, Gulf News reported, citing a circular sent to retailers.Retailers that violate the price ceilings could face fines of up to 20,000 dirhams ($5,447), the paper said.Minister of Economy Sultan bin Saeed al-Mansouri urged the Gulf state’s cooperative supermarkets to directly import sufficient basic food items to help stabilise prices, Khaleej Times reported.”The federal and local authorities, along with the cooperative societies, share the responsibility of controlling price rise and protecting consumers,” Mansouri said in astatement, according to daily Khaleej Times.The consumer protection body said last week it had urged the government to subsidise basic food items as part of measures to curb food price rises driven partly by the dollar’s decline to record lows against the euro and a basket of major currencies.Rising costs of labour, rents and government fees have also prompted retailers to pass price rises to consumers, Jamal al-Saeedi, executive manager of the body, told Reuters last week.”Consumers are encouraged to report any unfair trade practice or unreasonable price rises,” Mansouri said in the statement, according to Khaleej Times. 

So it seems both Kuwait & UAE are intervening in the markets and controlling prices rather than allowing the Central Banks to do the tasks they were set up to tackle. The surging inflation rate in the UAE is primarily due to the collapsing USD. Since the AED is pegged to the USD the UAE Central Bank is forced to lower the interest rates along with the Fed even though the US is doing it to stimulate the economy, and Dubai is destroying its economy.

The decision to depeg the AED is not being implemented for the sole reason that foreign businesses will be hurt with this revaluation especially since the employees are receiving the salaries in the local currency and must convert the funds to their home currency in-order to send money home.

Dubai is one of the most prominent cities in the world and a usual example of growth without the dependency of Oil production for the gulf. In the recent year, the collapse of the US economy will lead to the destruction of Dubai if the central bank does not intervene. The price ceilings are deterrents to businesses who rely on free markets to dictate prices. The domino effect of price increases in the Arab Emirates has created a surge in the inflation rate, the longer the central bankers wait to act the worse the situation will become.

Although the AE Central bank does not want to revalue they will be forced to once enough speculators begin testing the Central banks breaking point. The authorities should act in the best interest of the country as a whole and not on the foriegn companies’ belhalf. In the coming weeks the stress on the AED will be further tested and eventually broken leading to the temporary demise of a very young economy.

 —-

UPDATE: Checkout the rest of the site for updates…