8% Inflation?

The UAE measures inflation in about the same way as the commonly accepted economic method. Start by listing the percentage of income spent on various items, then compute the weighted average. For example, suppose a family only spends on two things, dividing their spending 50/50. One item increases by 10%, the other by 20%, then inflation is 15%. If the spending was 75/25, inflation would be 12.5%. This method tends to understate inflation.

Three years ago, I spent about 20% on rent. So, if rent goes up 40% but other things are about the same, that’s an 8% increase overall. Only, after the rises in rent, I now spend more than 50% on rent, but the official formula, used worldwide, still puts inflation at 8%, not 20%.

Actually, inflation in Dubai has been helped by the 15% rent cap, which my landlord has honoured. With rent now running 50% of my budget, that’s 7.5% inflation from rent, and 0.5% for everything else. Which feels about right.