Inflation in the UAE could slip into negative territory as a slump in the property market helps reduce housing prices, Deutsche Bank said.

Inflation, which hit 12.3 percent last year, has decelerated sharply on the year, coming in at 3.4 percent in the first half of the year to June.

'Our expectation of further declines in real estate prices would drag the housing component lower and a widening output gap will keep price pressures subdued more generally,' Deutsche Bank economist Caroline Grady said in a presentation.

'Headline inflation has declined sharply (year-to-date) and looks set to slip into negative territory.'    

Housing, which includes rents and utilities, accounts for 39.3 percent of the overall consumer price index.

The property sector implosion in the wake of the global financial crisis has hit the UAE, and Dubai in particular, hard and pushed house prices lower.

House prices in Dubai have plunged 50 percent from their peaks in the third quarter of last year, and are back at the same levels as the second quarter of 2007, according to property consultants Colliers. - Reuters