UAE companies raise prices for a second month

Alamy via Reuters

• Prices driven by higher costs
• UAE retail not yet affected
• Positive Ramadan expected

Companies in the UAE raised prices for a second consecutive month in February as they passed on higher input costs for materials, maintenance and technology. It was also the biggest price increase since September.

Staffing costs also rose, adding to the price rises, according to S&P’s purchasing managers’ index (PMI), a monthly survey of economic trends in manufacturing and services.

“Many companies reported the passing-on of higher material prices by suppliers, as well as increased costs for maintenance and technology,” according to the survey.

Overall, the seasonally adjusted index stayed at 55, above the 50 mark that represents expansion in the sectors. Below 50 is a contraction.

From lows in September and October last year, inflation in Dubai – the UAE’s biggest emirate by population – has been picking up. In January, it hit 3.15 percent, the highest since August, according to Dubai government data.

With the onset in March of Ramadan it is not clear what impact this will have on price rises and inflation. Retail spending across the seven-member UAE federation of 11 million people is forecast to hit nearly $10 billion, up 9 percent year on year, driven by improved consumer confidence and demand, according to business management consultants Redseer Middle East.

Traditionally, Ramadan is a time of price discounts to drive sales, suggesting any PMI-linked price rises this month may be limited. But that discount emphasis is changing as retailers shift towards marketing and flexible payment options.

“Ramadan season is not driven only by discounts,” said Abhishek Rajput, engagement manager at Dubai-based Redseer. “People are going to spend on home decor, gifting and essentials regardless.”

About 70 percent of shoppers say they plan to host more gatherings during the month, driving higher grocery sales, while beauty and personal care purchases are set to rise 17 percent, according to the Redseer study.

Split-payment options are also on the rise as consumers spread out expenses.

“During Ramadan, I predict the most significant increase will be through social shopping,” said Maire Morris, CEO of Morris Global Consulting.

Social shopping is a method of ecommerce in which shoppers’ friends become involved in the shopping experience. Social shopping attempts to use technology to mimic social interactions found in physical malls and stores.

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Industry experts have long warned that aggressive markdowns are outdated and damaging to the retail and hospitality industries.

“The market has changed, but mindsets haven’t,” said Naim Madaad, founder of Gates Hospitality. “Retailers still feel the need to discount heavily, which only erodes margins and makes consumers question how it’s sustainable for just one month of the year.” 

The shift in consumer behaviour, for instance towards social shopping, comes as the economy and consumer confidence improve. 

The IMF has revised its UAE growth forecast upward, and consumer willingness to spend has increased 5 percent year on year. 

Unlike in earlier years, when prices were rising at a faster rate, making consumers more cautious around spending, shoppers are now prioritising quality and convenience over price, according to Redseer.

Still, challenges remain for retailers. 

“Retail is going through a massive upheaval globally, and we’re seeing more late buying in non-essential categories like fashion,” said Morris. 

Ramadan-specific pop-ups – or short-term sales spaces – are dwindling, limiting smaller brands’ visibility, while larger retailers struggle with space constraints that have an impact on product mix.

With Ramadan overlapping with other occasions, such as Mother’s Day, shopping trends are shifting, according to Redseer.

Retailers that focus on marketing, flexible payment options and offers, rather than just discounting, are likely to see the biggest gains this season, according to Redseer.

What that means for the March PMI and inflation remains to be seen.