Most businesses in the UAE have opted to pass the cost of surging inflation to consumers in a bid to protect their margins, but they have not taken any steps to deal with inflation over the long term, according to a new survey.
The survey conducted by advisory firm Grant Thornton, found that companies in the UAE are feeling the pressure of increasing costs. Nearly nine out of ten (87%) of businesses polled have increased their prices, "at the same level or above cost increases".
Owners of mid-market businesses said they have seen increases of 18% in their energy and utility bills, 17% in raw materials costs and 14% in salaries or staff compensation. Businesses also saw a 16% increase in outgoings related to equipment, as well as bank, interest and taxes.
Grant Thornton's survey covered 5,000 mid-market businesses across 28 countries, including the UAE. Respondents were asked about price increases and steps being taken to mitigate the risks associated with rising costs.
Inflation has risen to historic levels in many markets worldwide, leaving both consumers and businesses to scramble for ways to protect their finances and margins. In the UAE, the International Monetary Fund (IMF) had forecast that inflation will be at 3.7% this year.
Emirates NBD also said in April that the UAE consumer price index (CPI) could average 4.3% in 2022, up from the previous forecast of 2.3%.
According to Samer Hijazi, Abu Dhabi Office Managing Partner at Grant Thornton UAE, the price increases imposed by businesses are "an extraordinary display of pricing power", supported by high consumer demand and supply constraints.
However, the price increases are not sustainable, and businesses must take steps to mitigate the risk of inflation over the long term.
"These recent price increases have been supported by a perfect storm of strong demand and supply shortages, but this situation won't last forever," said Hijazi.
"Mid-market businesses need to take a range of different, proactive steps to deal with inflation in the longer term. They can't simply continue to price their way out of this problem."
Grant Thornton shared several steps for businesses to deal with inflation which include locking in prices, bulk buying, renegotiating terms with suppliers or changing suppliers.
"In a high inflation environment, these basic countermoves can make a significant difference in limiting costs and protecting margins, said Hijazi.
(Reporting by Cleofe Maceda; editing by Seban Scaria)