Following a big jump in inflation in 2018 after the implementation of a 5 percent value-added tax, some economists believe that the UAE economy will slip into deflation this year following a persistent decline in housing and fuel prices and an oversupply in the retail and hospitality sectors.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said the UAE consumer price index contracted by 2.4 percent on a year-on-year basis in January from a 0.4 percent rise in December.

“We had expected to see deflation from January as the impact of the introduction of VAT in 2018 dropped out of the annual data and with the fall in housing and fuel prices,” she said.

The UAE levied 5 percent VAT on a host of goods and services from January 1, 2018 as part of a GCC framework agreed among the Gulf nations, resulting in a spike in inflation in the first few months of the implementation.