Inflation data released in the UAE last week showed that some limited price pressures are beginning to take hold. Headline inflation hit 1.2 per cent year-on-year in September, up from 0.9 per cent in August.
This is hardly a stunning rise but it is consistent with price pressures developing elsewhere in the emerging world. In the GCC the pattern is becoming well established, with food price inflation a particular culprit responsible for a significant portion of price gains.
As with some other major markets, there is a substantial gap opening up between core (excluding food and energy) and headline inflation rates. Whereas headline inflation rates range between minus 1 per cent (Qatar) and 6 per cent (Saudi Arabia), food prices are increasing by 11 per cent year on year in Kuwait and 8 per cent in Saudi Arabia, 6 per cent in Bahrain, 4 per cent in Oman and 1 per cent in Qatar.
In the UAE they rose by an annualised 7 per cent in September, up from 4 per cent in August. In all cases other than Bahrain, the trend in food inflation is up.
The rise in food prices is part of a wider issue. In most cases, food inflation has moved up decisively since the US dollar began to slide in May as commodity prices are mostly quoted in dollars. It also coincided with renewed strength in Asian economies as demand for commodities resumed.
Last week India and Australia raised interest rates in recognition of such growth and inflationary risks. It appears the rise in food prices is part of a broader theme of generalised commodity market and global asset market strength.
These have been driven by two factors. Anticipation of further quantitative easing (QE) by the US Federal Reserve last week became a reality with a further US$600 billion (Dh2.2 trillion) of US Treasury bond purchases, providing an improved appetite for risk assets. The weakening dollar is also a function of the Fed's expansionary monetary policy.
Ironically the Fed's strategy, designed to bring about a rise in inflation in the US, is achieving this almost everywhere but in the US, where inflation is falling. Zero interest rate Fed monetary policy combined with QE (keeping bond yields at historically low levels) is feeding capital flows into emerging markets and promoting growth there, rather than stimulating demand in the US.
Consumer prices in the US are running at 1.1 per cent year on year on a headline basis and 0.8 per cent in core terms (the lowest levels since 1965). Without impetus, they appear poised to sink back into deflationary territory.
The injection of fresh monetary stimulus directly into the US economy is unlikely to change matters much, as consumers and businesses sit on their hands in the knowledge that low interest rates are likely to be here for some time to come. At the same time, banks and financial institutions prefer to channel their cheap capital into higher yielding and appreciating assets in Asia and elsewhere.
US monetary policy has effectively gone global, sponsoring growth and inflation overseas, rather than benefiting the local economy at home. While one result of this should be to gradually reduce global trade imbalances, as US imports fall and those in Asia rise, in the shorter term these imbalances are worsening.
Asian trade surpluses are rising, in part because imports priced in dollars are becoming cheaper. There is also the significant risk that other imbalances will emerge through the creation of asset market bubbles. Divergent economic conditions also mean that global policy co-ordination will remain extremely challenging, lending itself to potentially dangerous outcomes including the possibility of trade wars.
We could also see bubbles in commodity markets. Contrary to expectations that commodity prices might be entering a "super cycle" in which strong demand from emerging economies drives a multi-year bull market, the more likely outcome may be less straightforward, especially should such bubbles start to burst.
Evidence of end-user demand for many commodities that have been rising in dollar price terms remains mixed. In other currencies, many commodities have hardly changed in value, and indexes that track global freight, such as the Baltic Dry index, have actually remained quite weak. But overall global trade is on the rise (witness the recent profits of DP World) and metals demand has been strong, boosted in China's case by inventory building.
Once this runs out of steam, however, downside risks could return. Responses to food price-driven inflation should be carefully calibrated should price rises they are intended to head off prove transitory, especially if the end result eventually turns out to be a bigger collapse.
About a year ago Wen Jiabao, the Chinese premier, is reported to have said: "I've seen the stock market go from 2,000 to 6,000 and back to 2,000 and now back up to 3,000 … I know how to deal with that … what I need to know about is food inflation".
Administrative measures have since been adopted by China to address asset market gains (particularly in property), but nothing to directly dampen food prices.
In this region higher prices usually elicit a variety of responses. In 2007-08 the combination of a falling dollar and rising demand for commodities by emerging market nations, in a more aggressive manner than today, led to a sharp increase in food prices. The surge in inflation was countered with wage subsidies and other non-market measures that served only to make price pressures worse by validating increased inflationary expectations and rewarding price rises by distributors.
It is important that authorities in the Gulf do not attempt to counter food inflation with subsidies this time around. Food prices also cannot be countered by interest rates, particularly in economies with fixed dollar-linked exchange rate regimes.
Revaluation of local currencies might appear to be an attractive option, but in reality this would be no panacea either. Dollar weakness may also turn out to be temporary, and if the economic recovery proves to be shallow the danger is that revaluation could make matters worse.
This leaves fiscal and competition policy, increasing competition and the removal of monopolistic practices among distributors. Policymaking should be focused on this area if price pressures continue to build, since it is only through strutcural reforms that productivity gains can become truly embedded.
These will stand regional economies in good stead regardless of how the external environment evolves.
Tim Fox is the chief economist at Emirates NBD and is writing here in a personal capacity
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Ziina users can donate to relief efforts in Beirut
Ziina users will be able to use the app to help relief efforts in Beirut, which has been left reeling after an August blast caused an estimated $15 billion in damage and left thousands homeless. Ziina has partnered with the United Nations High Commissioner for Refugees to raise money for the Lebanese capital, co-founder Faisal Toukan says. “As of October 1, the UNHCR has the first certified badge on Ziina and is automatically part of user's top friends' list during this campaign. Users can now donate any amount to the Beirut relief with two clicks. The money raised will go towards rebuilding houses for the families that were impacted by the explosion.”
If you go…
Emirates launched a new daily service to Mexico City this week, flying via Barcelona from Dh3,995.
Emirati citizens are among 67 nationalities who do not require a visa to Mexico. Entry is granted on arrival for stays of up to 180 days.
From Europe to the Middle East, economic success brings wealth - and lifestyle diseases
A rise in obesity figures and the need for more public spending is a familiar trend in the developing world as western lifestyles are adopted.
One in five deaths around the world is now caused by bad diet, with obesity the fastest growing global risk. A high body mass index is also the top cause of metabolic diseases relating to death and disability in Kuwait, Qatar and Oman – and second on the list in Bahrain.
In Britain, heart disease, lung cancer and Alzheimer’s remain among the leading causes of death, and people there are spending more time suffering from health problems.
The UK is expected to spend $421.4 billion on healthcare by 2040, up from $239.3 billion in 2014.
And development assistance for health is talking about the financial aid given to governments to support social, environmental development of developing countries.
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
MATCH INFO
South Africa 66 (Tries: De Allende, Nkosi, Reinach (3), Gelant, Steyn, Brits, Willemse; Cons: Jantjies 8)
Canada 7 (Tries: Heaton; Cons: Nelson)
The more serious side of specialty coffee
While the taste of beans and freshness of roast is paramount to the specialty coffee scene, so is sustainability and workers’ rights.
The bulk of genuine specialty coffee companies aim to improve on these elements in every stage of production via direct relationships with farmers. For instance, Mokha 1450 on Al Wasl Road strives to work predominantly with women-owned and -operated coffee organisations, including female farmers in the Sabree mountains of Yemen.
Because, as the boutique’s owner, Garfield Kerr, points out: “women represent over 90 per cent of the coffee value chain, but are woefully underrepresented in less than 10 per cent of ownership and management throughout the global coffee industry.”
One of the UAE’s largest suppliers of green (meaning not-yet-roasted) beans, Raw Coffee, is a founding member of the Partnership of Gender Equity, which aims to empower female coffee farmers and harvesters.
Also, globally, many companies have found the perfect way to recycle old coffee grounds: they create the perfect fertile soil in which to grow mushrooms.
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
Expert advice
“Join in with a group like Cycle Safe Dubai or TrainYAS, where you’ll meet like-minded people and always have support on hand.”
Stewart Howison, co-founder of Cycle Safe Dubai and owner of Revolution Cycles
“When you sweat a lot, you lose a lot of salt and other electrolytes from your body. If your electrolytes drop enough, you will be at risk of cramping. To prevent salt deficiency, simply add an electrolyte mix to your water.”
Cornelia Gloor, head of RAK Hospital’s Rehabilitation and Physiotherapy Centre
“Don’t make the mistake of thinking you can ride as fast or as far during the summer as you do in cooler weather. The heat will make you expend more energy to maintain a speed that might normally be comfortable, so pace yourself when riding during the hotter parts of the day.”
Chandrashekar Nandi, physiotherapist at Burjeel Hospital in Dubai
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
A State of Passion
Directors: Carol Mansour and Muna Khalidi
Stars: Dr Ghassan Abu-Sittah
Rating: 4/5
Full list of Emmy 2020 nominations
LEAD ACTOR IN A COMEDY SERIES
Anthony Anderson, Black-ish
Don Cheadle, Black Monday
Ted Danson, The Good Place
Michael Douglas, The Kominsky Method
Eugene Levy, Schitt’s Creek
Ramy Youssef, Ramy
LEAD ACTRESS IN A COMEDY SERIES
Christina Applegate, Dead to Me
Rachel Brosnahan, The Marvelous Mrs. Maisel
Linda Cardellini, Dead to Me
Catherine O’Hara, Schitt’s Creek
Issa Rae, Insecure
Tracee Ellis Ross, Black-ish
OUTSTANDING VARIETY/TALK SERIES
The Daily Show with Trevor Noah
Full Frontal with Samantha Bee
Jimmy Kimmel Live
Last Week Tonight with John Oliver
The Late Show with Stephen Colbert
LEAD ACTOR IN A DRAMA SERIES
Jason Bateman, Ozark
Sterling K. Brown, This Is Us
Steve Carell, The Morning Show
Brian Cox, Succession
Billy Porter, Pose
Jeremy Strong, Succession
LEAD ACTRESS IN A DRAMA SERIES
Jennifer Aniston, The Morning Show
Olivia Colman, The Crown
Jodie Comer, Killing Eve
Laura Linney, Ozark
Sandra Oh, Killing Eve
Zendaya, Euphoria
OUTSTANDING REALITY/COMPETITION PROGRAM
The Masked Singer
Nailed It!
RuPaul’s Drag Race
Top Chef
The Voice
LEAD ACTOR IN A LIMITED SERIES/TV MOVIE
Jeremy Irons, Watchmen
Hugh Jackman, Bad Education
Paul Mescal, Normal People
Jeremy Pope, Hollywood
Mark Ruffalo, I Know This Much Is True
LEAD ACTRESS IN A LIMITED SERIES/TV MOVIE
Cate Blanchett, Mrs. America
Shira Haas, Unorthodox
Regina King, Watchmen
Octavia Spencer, Self Made
Kerry Washington, Little Fires Everywhere
OUTSTANDING LIMITED SERIES
Little Fires Everywhere
Mrs. America
Unbelievable
Unorthodox
Watchmen
OUTSTANDING COMEDY SERIES
Curb Your Enthusiasm
Dead to Me
The Good Place
Insecure
The Kominsky Method
The Marvelous Mrs. Maisel
Schitt’s Creek
What We Do In The Shadows
OUTSTANDING DRAMA SERIES
Better Call Saul
The Crown
The Handmaid’s Tale
Killing Eve
The Mandalorian
Ozark
Stranger Things
Succession
