Inflation is a situation of an increase in prices for goods and services and a decrease in the purchasing power of the consumers.
In general terms, inflation means you have to pay a higher price for the commodities and services. This means that the cost of living increases during the inflation period.
According to Mercer’s 2019 Cost of Living report, Dubai is the most expensive city in the UAE.
What is Inflation?
To understand Inflation let’s take an example, the price of two cups of coffee in Dubai over ten years ago was AED 3-5 but today you might get only one cup of coffee for this price. The purchasing power of your money got weaker and you have to increase your spending than earlier.
Inflation is the continuous decline in the value of money, this decline will result in an increase in the prices of goods and services.
The reasons for inflation are many but the most common reasons are excess demand, less supply, increase in the prices of raw materials, increase in import prices, decrease in productivity, higher taxes and various other external environmental factors.
In a healthy economy, inflation is a sign of growth because with the increase in inflation rate there is a simultaneous increase in wages.
Check: Live Gold Rate in Dubai
How Inflation affects you?
Inflation is an average price where a consumer buys goods and services. Inflation is measured through consumer price Index.
Consumer price index means the weighted average of prices paid for goods and services. This includes expenses paid for daily household requirements, transportation, medical facility and others.
If you are paying a higher price for the same items which were earlier sold at a lower price than you actually paying because of inflation.
The price rise will affect negatively and has a direct impact on spending.
- Salaried employees feel the pinch, as prices increase and their income does not increase.
- National Savings decreases as people tend to spend more during inflation.
- Industries can shut down because of losses incurred due to inflation.
Inflation in Dubai
In Dubai, the components of Consumer Price Index are Housing, Food & Soft Drinks, Transportation, Goods and Services, Furniture and Household, Communications, Hotels, restaurants, clothing, textiles, footwear, medical care, beverages, tobacco and others.
According to Dubai Statistics Centre, Inflation in Dubai rose by 1.32% in June 2019 and there was an increase in prices in transport segment by 6.87%, increase in prices for hotels and restaurants segment by 10.73%, food and non-alcoholic beverages by 3.19%, education price indices grew up by 3.23% and Communications grew by 5.43% respectively.
The increase in percentages means you have to pay more than usual for the goods and services.
The cost of living in Dubai is increasing as inflation rates are rising. There is a decline in the purchasing power of money and residents have to pay more to live in Dubai.
The good news is that the Consumer Price Index in Dubai declined by 2.97% in August 2019.
There was a decrease in prices for Housing, water, electricity, gas by 6.12 % which resulted in a decrease in Inflation which is nothing but deflation.
Meanwhile, during the same period the prices remained high for clothing, footwear, household needs, maintenance, education and health.
In recent times, Dubai has faced a slowdown in the real estate market, the property prices are adjusting to new supply and are witnessing market correction.
According to Standards & Poor’s rating agency House prices would fall 5% to 10% in the year 2020. The slowdown in the economy and oversupply of housing units are the reasons for the situation.
Ways to fight against Inflation
Make Commercial Investments
The prices of commodities increase during the period of inflation so invest in commodities like gold, metals, oil and others.
The benefit of investing in these commodities is you can purchase them at a low price and sell them at high prices during inflation.
Save Money
Invest in Fixed Deposits, bonds, mutual funds which give good returns on investments.
Invest your money in high interest savings accounts make your money to make you more money.
Every month once you receive your salary allocate a portion of amount to your savings account. Create a habit of saving money and remember if you save money it will save you.
Click here to know Best Savings Accounts in Dubai, UAE
Build a Support Group
Build relationships with your friends and neighbours and establish trading goods and services.
When prices tend to rise, you will be in a better position with good business opportunities. Babysitting jobs, Consultancy jobs, freelancer jobs are some of them which can be established with the help of right support group.
Click here for the List of Free Zones in UAE to start your Business
Start your Garden
Invest your time in gardening and grow your own food you want to eat. Even if you do not have enough space, you can still grow food like herbs in big plastic bottles and windowsill inside.
The residents of Dubai have started to grow various food varieties at home after the Dubai Municipality launched the program ‘Grow Your Food’ in the year 2016.
During Inflation you can save your money on vegetables and reduce your grocery expenses.
Save Water and Electricity
In Dubai, on an average, you need to spend AED 1,200 per month for water and electricity consumption.
If it is Summer then you will have to spend more as you will use more water and air conditioners.
Set thermostat at 24°F or higher while using the air conditioner, this can save 9% of cost.
When the air conditioner is not in use turn it off. Save water by using water saving appliances, close the taps when not in use and wash dishes by yourselves as dishwashers consume more water.
By saving water and electricity you not only reduce your expenses but also save nature.
Conclusion
The best way to fight inflation is to make smart choices by investing in short term and long term investments. Inflation gives a warning that today’s purchasing value of money will decline tomorrow, so the best way is to make the right decisions at the right time.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
