Dubai inflation climbs in September as Iran war pushes up fuel cost

In September, Dubai's inflation rate climbed by 5.03 percent annually, driven by surging fuel and transportation expenses stemming from the ongoing US-Iran conflict. The inflation increase, while less severe than the 5.54 percent annualized rise in August and the peak of 5.7 percent in June, marked a slower pace compared to previous months.

Dubai's monthly consumer price index decreased by 0.05 percent, thanks to reduced airfares and more affordable holiday packages. The airfares dropped by 23.44 percent, and holiday packages declined by 12.47 percent from August levels. However, on an annual basis, transportation charges propelled the inflation surge by 14.7 percent, fueled by a 37.52 percent rise in personal transport fuel costs and a 13.48 percent increase in air passenger transport costs.

Transport, which makes up 9 percent of Dubai's consumer price index, has been the principal contributor to inflation over recent months due to escalating fuel prices. The UAE eliminated fuel subsidies in 2015, and fuel prices are determined monthly based on global market fluctuations. Petrol prices in the UAE rose for the third consecutive month in October as global oil prices stayed elevated due to the prolonged geopolitical tensions in the Middle East.

The Brent crude, which soared by nearly 109 percent during the war's peak, remains over 70 percent higher than before the conflict. The West Texas Intermediate benchmark climbed above $105 a barrel in September as the Strait of Hormuz remained a potential flashpoint due to escalating attacks on Saudi infrastructure by Houthi rebels in Yemen, posing further risks to energy supplies from the region.

Despite these challenges, Dubai's economy has largely avoided the severe downturn seen in other regional economies. Non-oil private sector business activity in the emirate, a significant business and tourism hub in the Middle East, continued its robust growth trajectory. Dubai's Purchasing Managers' Index rose to 54.5 in September, up from 54.1 in August, signaling a "solid improvement" in the region, with the fastest pace of growth since 2026.

This uptick in non-oil economic activity was mainly driven by a "sharp and accelerated increase in output," along with a sharp rise in new orders and employment, as reported by S&P Global Markets Intelligence. The tourism and retail sectors in Dubai have also rebounded from the initial shock of the war. Property, one of the top contributors to the emirate's economy, has also remained relatively stable.

Food and drinks increased by an annualized 8.05 percent, while housing, water, electricity, gas, and domestic fuel rose by nearly 6.23 percent due to the surge in average residential rental prices across most areas of the emirate in September, according to the latest government data.