UAE Businesses Raise Prices at Fastest Pace on Record, S&P Global PMI Shows

Input costs climbed at their sharpest pace in four years, according to S&P Global's purchasing managers' index (PMI). "The unprecedented rise reflected efforts to pass cost burdens on to customers," said David Owen, economist at S&P Global Market Intelligence.

The jump in charges is the clearest sign yet that the cost shock from the US-Iran war, now in its ninth month, is reaching UAE customers. Inflation has stayed largely subdued across the six Gulf Cooperation Council states despite higher global energy and commodity prices caused by supply-chain disruption from the conflict. Firms told S&P Global they were paying more for raw materials, fuel, energy, freight, maintenance, storage and rent.

"Firms have spent many months absorbing higher costs to protect margins, so the current pass-through is partly defensive," Aathira Prasad, economist at Nasser Saidi & Associates in Dubai, told AGBI.

Demand has so far held up. The headline PMI stood at 54.8 in October, slightly below September's reading but well above the 50 mark that separates growth from contraction. Activity rose in construction, retail, tourism and manufacturing, although some businesses cited constraints from the regional conflict, competition and weaker discretionary spending. New orders kept rising, helped by stronger overseas demand, and new export work grew at its fastest pace in exactly two years.

"With orders accelerating and work backlogs rising sharply again, firms are in a relatively stronger position," Prasad said. "The current pace of price increases (fuel, freight and imported inputs) looks manageable for a few more months while demand holds up."

Hiring is the weak spot. Employment slipped fractionally in October, the third decline in five months. "Some firms reduced headcounts to control costs, which offset hiring at others in response to rising sales," the report said.

Business confidence nonetheless improved. Expectations for activity over the next 12 months rose to their highest level since January, which firms mainly attributed to strong forecast demand, according to the survey. S&P Global compiles the index from monthly responses by about 1,000 business managers in the country.

For companies and policymakers, the question is how long that demand can absorb higher prices. Prasad's assessment gives the current pace a few more months while orders hold up, and the November survey, due in early December, will show whether firms keep pushing charges higher or whether the record October increase was a one-off catch-up.