Abu Dhabi: Deflation Takes Hold As Housing Costs Fall

The Landmark skyscraper, center, stands on the city skyline beside a waterway in Abu Dhabi, United Arab Emirates, on Monday, May 30, 2016. Abu Dhabi, which sits on six percent of global oil reserves, cut spending by a fifth in 2015 and plans a further 17 percent reduction this year, according to the governments bond prospectus. Photographer: Alex Atack/Bloomberg
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Deflation is becoming entrenched in the United Arab Emirates’ capital.

Consumer prices in oil-rich Abu Dhabi declined for a second consecutive month, falling 1.4% in July from a year ago, according to a release by the emirate’s statistics service. The drop was the biggest since at least 2015, and the sixth in seven months, according to data compiled by Bloomberg.

An index of prices for housing, water and electricity, which holds the biggest weight among a dozen constituents, dropped 3.6% last month.

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“In the foresee-able future, it is hard to see the housing sector bottoming out, given current market conditions,” said Mohamed Bardastani, the Dubai-based senior economist at Oxford Economics. “A mismatch in the supply and demand curve and weak employment numbers have weighed down on housing prices, and that is the case in both Dubai and Abu Dhabi.”

The deflationary momentum began in the U.A.E., and neighboring Saudi Arabia, because the introduction of value-added tax in 2018 created a high base for comparison. The prolonged slump in housing costs that’s now putting broader price growth into negative territory has kept it going.

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