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Deflation Takes Hold in Abu Dhabi as Housing Pressures Most

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Deflation Takes Hold in Abu Dhabi as Housing Pressures Most

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Deflation is becoming entrenched in the United Arab Emirates’ capital.

Consumer prices in oil-rich Abu Dhabi declined for a second consecutive month, falling 1.4% in July from a year ago, according to a release by the emirate’s statistics service. The drop was the biggest since at least 2015, and the sixth in seven months, according to data compiled by Bloomberg.

Read: World’s Only Deflation Outpost Gets Stuck in Property Malaise

Abu Dhabi consumer prices fell by the most in at least four years

An index of prices for housing, water and electricity, which holds the biggest weight among a dozen constituents, dropped 3.6% last month.

“In the foreseeable future, it is hard to see the housing sector bottoming out, given current market conditions,” said Mohamed Bardastani, the Dubai-based senior economist at Oxford Economics. “A mismatch in the supply and demand curve and weak employment numbers have weighed down on housing prices, and that is the case in both Dubai and Abu Dhabi.”

The deflationary momentum began in the U.A.E., and neighboring Saudi Arabia, because the introduction of value-added tax in 2018 created a high base for comparison. The prolonged slump in housing costs that’s now putting broader price growth into negative territory has kept it going.

(Updates with more details in second paragraph. An earlier version of this story was corrected to show prices fell by the most since 2015.)