A sharp rise in fuel prices in June resulted in a severe increase in business expenses and prompted non-oil businesses in the UAE to hire more staff as costs rose at the fastest pace in 11 years, according to a new business survey.
The headline seasonally adjusted S&P Global UAE Purchasing Managers' Index (PMI) posted firmly above the crucial 50.0 mark in June but dropped from 55.6 in May to 54.8.
Non-oil businesses in the Emirates faced intense inflationary pressures leading to a slowdown in purchases and reduced stockpiling efforts. "More than twice as many surveyed firms indicated a rise in their expenses compared to May, leading many to curb spending on inputs," David Owen, Economist at S&P Global Market Intelligence, said.
Nevertheless, helped in part by sustained efforts to lower output charges and offset competitive pressures, firms continued to see a robust increase in new orders in June driving a strong expansion in activity.
According to the PMI survey, some firms mentioned that rising interest rates had hit household and business spending. Also, there was some evidence that firms had to offer higher salaries to hire and retain staff, as average wages rose at the fastest pace for over four years.
However, the outlook for future activity remains positive despite the concerns that inflation will hit spending.
"While firms remained positive about future activity, the survey data suggested that they are unlikely to maintain cost margins at the current level," Owen said.
"The ratio between the Input Price and Output Price Indices was the highest on record, signalling that price rises for customers are likely in the coming months," he added.
(Writing by Seban Scaria; editing by Daniel Luiz)