UAE Firms Hike Prices At Fastest Rate Since 2011 As Gulf Tensions Spike Costs

2026-05-05 02:18:35

(MENAFN- Khaleej Times) [Editor's Note: Follow the Khaleej Times live blog for the latest regional developments with the US-Israel-Iran ceasefire now in effect.]

UAE businesses sharply increased selling prices in April at the fastest rate in nearly 15 years, as supply disruptions linked to escalating Gulf tensions and rising energy costs fed through to the broader non-oil economy, according to the latest survey data from S&P Global.

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The surge in prices - the steepest since mid-2011 - reflects mounting cost pressures on companies grappling with constrained supply chains, higher transport costs and a sharp drop in export demand amid disruptions in the Strait of Hormuz, a key global shipping route.

The S&P Global UAE Purchasing Managers' Index (PMI) slipped to 52.1 in April from 52.9 in March, marking the weakest expansion in operating conditions since early 2021. While the reading remains above the 50-mark that separates growth from contraction, the data points to a clear loss of momentum in the non-oil private sector.

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At the heart of the shift is a surge in input costs, driven largely by higher oil prices - which have climbed above $110 a barrel in recent weeks - and escalating freight and logistics expenses. Businesses have responded by passing these costs on to customers at an accelerated pace.

“The uplift in selling prices - the fastest in nearly 15 years - underlines the growing inflation risks to the non-oil sector,” said David Owen, senior economist at S&P Global Market Intelligence.“Heavy restrictions on key shipment routes have disrupted exports, while rising cost pressures are placing businesses under additional strain.”

The findings reinforce broader concerns flagged by global institutions about supply-chain fragmentation and its inflationary impact. The International Monetary Fund has warned that disruptions to energy and trade flows in the Middle East could feed into higher global inflation, particularly for import-dependent economies.

Similarly, the World Bank has cautioned that energy price shocks linked to geopolitical tensions are already pushing up production and transport costs worldwide. In the UAE, the impact is being felt across sectors. Companies reported that higher fuel, shipping, and raw material costs were compressing margins, forcing many to raise prices despite softer demand.

The rise in selling prices comes even as new business growth slowed to its weakest pace in more than five years, reflecting cautious client spending and a downturn in tourism-related activity.

Export orders were particularly hard hit. The survey showed a sharp contraction in new export business - the steepest decline since the 2020 pandemic period - as shipping disruptions and heightened security risks deterred cross-border trade.

According to the International Maritime Organisation, constraints in key transit routes have significantly reduced vessel movements, leading to delays and higher insurance costs that affect cargo flows across the Gulf. This has compounded supply shortages and lengthened delivery times, adding to businesses' cost pressures.

Economists say the combination of rising costs and weaker demand presents a challenging environment for firms.“What we are seeing is classic cost-push inflation,” said an economist at a leading regional bank.“Companies are being forced to raise prices to protect margins, but that risks dampening consumption and slowing overall economic activity.

”Dubai's non-oil economy showed similar trends. The Dubai PMI fell to 51.6 in April - a 55-month low - signalling only modest growth. Output and new business expansion softened further, while input costs continued to rise sharply. Although firms increased selling prices at a strong pace, the rate of increase was slightly slower than in March, suggesting some customer resistance.

To cope with rising costs, businesses have taken steps to contain expenses. Hiring growth slowed to its weakest level this year, while wage increases remained muted, with some firms even reporting salary freezes. Purchasing activity also remained subdued, reflecting caution amid uncertain demand and elevated input prices.

Despite these near-term pressures, there are signs of underlying resilience. Output continued to expand, supported by ongoing infrastructure projects and steady domestic demand. Business confidence also improved, with firms expressing optimism about the year ahead on the back of strong project pipelines, technological investments and expectations of a recovery in global trade conditions.

Still, analysts warn that risks remain tilted to the downside. Much will depend on how quickly supply chains normalise and whether geopolitical tensions in the Gulf ease in the coming months.“The key variable now is the duration of the disruption,” said Owen of S&P Global.

“If supply constraints persist and cost pressures remain elevated, we could see further price increases and a more pronounced impact on demand.” For the UAE, the latest data underscores a delicate balancing act: sustaining growth in the non-oil economy while navigating a surge in inflationary pressures driven largely by external shocks.