Falling transport, clothing and tobacco prices, coupled with slower housing and food price growth, cut Dubai’s CPI inflation to 1.9% y/y in January from a 3.1% annual rise the month before, according to data released by the statistics office.

Housing costs, which make up 44% of the CPI basket, rose a mild 0.5% m/m in January, cutting the annual growth to 4.4% from 5.6% y/y in December last year. The reading remains mainly underpinned by soaring rents and low prior-year base. Rent prices will keep rising in the near term amid strong expats demand.

Food and non-alcoholic prices (11% of the index) dropped 1.9% m/m in January on favourable seasonal factors and lower imported inflation, reducing the annual growth to 3.1% from 3.3% in December.

Transport costs (9.08% of the index) also shrank 2.7% m/m widening the annual deflation to 4.1% from 1.6% y/y in December. The federal government liberalized the fuel prices in August last year to cut the budget deficit.

Clothing and footwear charges dropped 4.8% y/y, the same as in December.

Education prices grew 4.8% y/y in January, the same a month earlier.

In 2015, Dubai’s CPI inflation averaged 4%. The reading, which bodes well with government efforts to curb rising inflationary pressures amid soaring public spending and consumer demand, was kept anchored by falling energy prices and related imported inflation. The pattern will keep the CPI inflation well anchored in the near term.