DUBAI, (Reuters) – The United Arab Emirates said on Tuesday it would move to bring down the cost of basic food items charged by retailers because they were no longer appropriate following a slump in world commodity prices.
The second-largest Arab economy last year signed a series of agreements with supermarket chains to fix the cost of basic food items such as sugar, cooking oil, rice and flour at 2007 levels in an effort to curb inflation at a 20-year peak.
But many of those prices now exceed the global average by 25 percent after oil prices collapsed almost $100 a barrel from a peak last July, said Hashim Saeed al-Neaimi, the manager of consumer protection at the UAE’s Ministry of Economy.
“We need to match the overall downturn in global food prices,” Neaimi told Reuters.
The ministry planned to sign new deals with retailers to reduce fixed selling prices for foods, which would also cut into retailers’ profit margins, he said.
“Since food prices have gone down globally it is only fair to bring them down here too and this will take effect in about one to two weeks’ time,” Neaimi said, declining to say how much the ministry would slash prices.
About a year ago, the ministry had signed price-fixing deals with the country’s Union Cooperative Society, French supermarket retailer Carrefour, Abu Dhabi-based Lulu Hypermarket Group and Baniyas Cooperative Society.
Inflationary pressures in the UAE, the world’s fifth-largest oil exporter, have subsided substantially since the global financial crisis brought to an end a regional economic boom that had been spurred by a six-year rally in oil prices.
The UAE emirate of Dubai is suffering from a severe real estate price correction that could push residential real estate prices down 38 percent this year and rents off by about a third, a Reuters poll showed last month.
Largely the result of a decline in housing costs, lower food costs, and the stronger U.S. dollar, UAE inflation is likely to fall to 4.8 percent this year from 13.6 percent in 2008, a 20-year peak, economists polled by Reuters said in March.
“If we don’t drop the prices the only ones that will benefit from this situation are the retailers because it just means more profit for them,” Neaimi said.
He added that if oil prices were to fall further from levels of around $50 a barrel, the ministry could revise prices again.