UAE inflation hit an 18-month high of 1.9 per cent in October, while prices edged up slightly in neighbouring Bahrain, data showed on Sunday, indicating economic recovery is slowly taking hold.

Consumer prices in the UAE, the world's third-largest oil exporter, had picked up in September to reach 1.2 per cent on the year after staying at 0.9 per cent for four straight months.

On the month, price growth slowed to 0.6 per cent in October, from 0.9 per cent the previous month, as a surge in housing costs failed to offset a sharp deceleration in food price growth, data from the National Bureau of Statistics showed.

'I am not concerned (about higher inflation). I would see it more as a normalisation of things,' said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.

UAE inflation hit a nine-year low of 1.6 per cent last year, plunging from a record high of 12.3 per cent in 2008, as the global crisis pierced a local real-estate bubble, pushing the second-largest Arab economy into its first recession since 1993.

In 2010, price growth remained weak due to the impact of Dubai's debt woes which squeezed the Opec member's banking sector while the property market remained flush with new units.

Housing prices, which account for over 39 per cent of UAE living costs, jumped 1.2 per cent month-on-month, after a 0.2 per cent rise in September, which analysts attributed to a likely increase in below-market rents.

Volatile food price growth cooled significantly, running at 0.4 per cent in October, well below a Ramadan-impacted 2.7 per cent surge in the previous month.

Transport costs, the third-largest basket item, dived into negative territory in the latest month, posting a 0.1 percent fall after September's 1.6 per cent increase.

Dubai, which accounts for around 80 per cent of the UAE's non-oil trade, saw annual inflation subsiding to a six-month low of 0.3 per cent in October.

Abu Dhabi, which accounts for 10 per cent of the world's oil reserves and more than 60 per cent of the UAE economy, has yet to release detailed October data after inflation climbed to at least a 21-month high of 3.8 per cent in September.

In September, analysts polled by Reuters expected average UAE inflation of 1.5 per cent in 2010.  In Bahrain, inflation inched up to 2.1 percent on an annual basis in October, a three-month high, but price growth slowed to a mere 0.1 percent on the month, separate data showed on Sunday.

'Headline inflation increases in Bahrain and the UAE, although slightly higher than before, are extremely benign and will remain so for the next year or so,' said John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi.

'The overall macroeconomic picture is one of recovery but not a spike in economic activity in Bahrain and the UAE,' he said. Analysts expected inflation in the small, non-Opec crude producer to reach 3 per cent this year.-Reuters