Dubai’s annual inflation saw a slight uptick in May, coming in at 2.37% y-o-y, compared to 2.31% in April, reversing a four-month trend of softening following January’s peak of 3.22%, according to the Dubai Statistics Center (pdf). However, most components of the basket showed only moderate price growth, with EmiratesNBD (pdf) anticipating that inflation “should be maintained around current levels through the rest of the year,” the bank said in its research note.

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The breakdown: Prices for housing, water, electricity, gas, and other fuels — the largest component in the inflation basket — continued to increase at a slower pace, this time rising by 6.85%, slightly down from 7.02% in April, continuing a downward trajectory since the beginning of the year. Food and beverages also saw a slight rise of 0.33% during the month, compared with the 0.2% fall recorded in April. Furnishing, household equipment and routine household maintenance, along with restaurants and accommodation and recreation, sports, and culture, also recorded slight price growth, though at a slower pace.

Segments seeing deflation: Transport prices, making up just over 9% of the index, slipped further to -8.75% y-o-y in May, compared to -7.64% y-o-y in April. The information and communication sector was the only other sector that saw deflation during the month, seeing a deceleration of -1.78% y-o-y in May.

On a monthly basis, prices fell by 0.18%, in what is the second instance of monthly deflation since July 2024, according to monthly figures from the statistics center’s monthly inflation report (pdf).

Geopolitical developments could have big implications on inflation: “The current spike in Brent crude prices on the back of Middle Eastern instability could see some of this deflationary pressure ease,” Emirates NBD wrote.

Remember: The escalation of violence between Israel and Iran has already driven oil prices higher, due to expectations of risk to global energy supply chains, National Bank of Kuwait's Issa Hijazeen told EnterpriseAM earlier this week. The Israel-Iran escalation of hostilities sent oil prices up by as much as 13% on Friday midday before settling up 7%. Still, the spike to USD 73.8 for Brent on Friday is still 12.6% lower than Brent futures a year ago, Emirates NBD said.

Looking ahead: Emirates NBD expects inflation to come in at 2.5%, down from its previous forecast of 2.8%, which it previously stated was down to the downward pressure on oil prices expected throughout the year and other components of the basket showing weak price growth, according to the note. The Central Bank of the UAE (CBUAE) had pencilled in a 2.0% inflation rate for the country this year, almost matching the IMF’s recent estimate.

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