UAE companies lift customer charges at record pace

UAE non-oil businesses increased selling prices at the fastest pace on record in October as escalating operating costs outweighed efforts to protect profit margins, a closely watched survey showed on Wednesday.
The S&P Global UAE Purchasing Managers’ Index (PMI) eased to 54.8 from 55.3 in September, indicating continued expansion in private-sector activity despite the intensifying price pressures. Readings above 50 signal improving business conditions, while those below that threshold indicate contraction.
Selling price inflation reached its highest level since the survey began in August 2009. Companies reported passing higher costs to customers after input price inflation accelerated to its strongest pace since June 2022, raising concerns about broader inflationary pressures during the final quarter of the year.
Businesses identified increases in raw material prices, fuel, energy, freight, maintenance, storage and rent. Higher purchasing costs were the principal driver, while successive increases in petrol and diesel prices added to pressure on operating budgets.
David Owen, principal economist at S&P Global Market Intelligence, said the unprecedented increase in selling prices reflected attempts by companies to recover higher expenses from customers. He warned that the combination of rising fuel bills and more expensive essential materials indicated greater inflation risks for the UAE economy in the fourth quarter.
The survey measures changes reported by purchasing managers, not consumer inflation. Its price indices nevertheless indicate whether companies are transferring higher business costs to customers. October showed firms raising charges despite competitive pressures.
The pressure on margins contrasted with resilient demand. New orders grew faster than in September, supported by both new customers and repeat business. Export orders increased at their quickest rate in two years, suggesting overseas demand was contributing more strongly to the expansion.
Output continued to grow at a robust pace, slowing only marginally from September’s seven-month high. Survey participants reported increased activity in construction, retail, tourism and manufacturing. However, some businesses identified regional conflict, competitive pressures and weaker discretionary spending as constraints on operations.
Employment fell slightly for the third time in five months. Some companies reduced staffing to contain expenses, offsetting recruitment by businesses responding to stronger sales. The divergence between order growth and available capacity contributed to another sharp increase in unfinished work, although the accumulation of backlogs was the slowest in three months.
Companies also increased purchasing activity at the fastest rate in nine months to meet incoming orders. Inventories of purchased inputs expanded only marginally, however, with stocks rising at their slowest pace since July as materials were quickly consumed in fulfilling customer demand.
Limited inventory accumulation suggested businesses were directing supplies towards existing work rather than building substantial buffers. Stronger demand did not translate into larger stocks amid expensive inputs and uncertain transport conditions.
Supplier delivery performance improved by the greatest margin since June. Businesses reported satisfactory availability from domestic suppliers and greater responsiveness among vendors. Some companies shifted towards local sourcing to reduce exposure to disruptions affecting maritime shipping routes.
Business expectations improved despite higher costs. Optimism about activity over the coming year reached its highest level since January, supported by forecasts of sustained demand and hopes that regional conditions would improve, particularly for tourism-related businesses.
Daniel Richards, senior economist at Emirates NBD, said the October readings indicated continuing expansion in the UAE’s non-oil private sector. Demand remained firm, he observed, although the effects of regional conflict continued to disrupt trade and increase business costs.
Dubai’s non-oil economy recorded a slightly stronger headline reading than in September. Its PMI rose to 54.6 from 54.5, reaching an eight-month high and signalling a sustained improvement in operating conditions.
New business volumes in Dubai increased at a pace matching the strongest since February. Companies responded by raising output, but employment declined modestly as businesses remained cautious about additional staffing expenditure.
Dubai firms also increased their selling charges at the fastest pace recorded in the emirate’s survey, passing higher purchasing and operating costs to customers. Overall input cost inflation accelerated to its highest level since June 2022, mirroring the pressures reported nationally.
Confidence among Dubai businesses strengthened as expectations for future activity improved. Nevertheless, firms were less inclined to build inventories than in September, with higher costs limiting stockpiling even as incoming orders expanded.