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Cause for cautious optimism: inflation eased in Dubai in July

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Celebrations are on hold as inflation is still high but signs of improvement bring hope

Price inflation eased slightly in Dubai in July for the first time in four months but remained among the fastest on record, according to new figures.

The latest purchasing managers’ index (PMI) data from S&P Global showed that activity in the non-energy private sector continued to expand sharply to its highest level in three years while cost inflationary pressures slowed from the fastest rise in nearly four-and-a-half years in June.

The easing of cost inflation broke a four-month sequence of accelerating price increases although cost pressures remained strong overall and the second-highest since late 2017, with travel and tourism recording the fastest rate, reflecting the sector’s relatively high exposure to rising fuel prices.  

The Dubai PMI rose to 56.4 in July from 56.1 in June. This signalled a sharper overall improvement in business conditions and the best performance since June 2019.

Growth has strengthened five times in the past six months and the PMI remained above its long-run average of 54.5 in the latest period.

Output rose for the 20th month running in July, and at the fastest rate in three years.

Growth rates accelerated since June across each of the three key sectors monitored, with the strongest expansion seen in wholesale and retail, followed by travel and tourism and construction.

New business receipt growth eased from June’s near-three year high, but was still sharp overall. Many firms reported successful marketing activity including promotions and discounting to stimulate sales. 

Companies said they remained optimistic regarding growth of business activity over the next 12 months but the strength of sentiment eased from June’s eight-month peak and was below the long-run series average.

An exception to this trend was in the travel and tourism sector, where confidence was the highest since November 2021.

Non-energy private sector firms also reported a stable trend in prices charged for goods and services in July, ending a 12-month period of falling output prices. 

In terms of supply chains, July data signalled longer average lead times for non-energy private sector firms – the first deterioration in vendor performance since December 2021.

According to PMI data, the labour market continued to improve in July, with employment rising for the third successive month and continuing the overall trend of growth seen since the start of 2021.

The rate of job creation was the joint fastest registered in 2022 so far. 

David Owen, economist at S&P Global Market Intelligence, said: “Dubai’s non-oil private sector registered the fastest rise in output in three years in July, supported by another solid increase in new business and promotional activity. 

“Input price inflation remained among the fastest on record despite slowing from June’s 53-month high.

“Fuel prices again impacted firms’ costs, notably in the travel and tourism sector where input prices rose the most since this index began in 2015.” 

He added: “There was also evidence of rising pressure on firms’ selling prices. Although overall charges levied for goods and services were broadly unchanged since June, this ended a 12-month sequence of discounting.”