Inflation in the UAE eased to a three-month low of 1.3 per cent on an annual basis in July helped by a weak housing market, data showed on Sunday, and analysts expect price pressures to remain low in the coming months.

Consumer price growth in the world's No. 3 oil exporter has been holding above 1 per cent so far this year, after an average 0.9 per cent seen in 2010, which was the lowest annual level since the Gulf war started in 1990.

In June, inflation reached a six-month high of 1.7 per cent and analysts polled by Reuters expected it to advance to 2.5 per cent on average in 2011.

On the month, living costs fell 0.2 per cent in July after a 0.4 per cent increase in the previous month as declines in housing and transport costs more than offset a jump in food prices, data from the National Bureau of Statistics showed.

'Rents will continue to play a moderating role in inflation, while other categories are pushing inflation up,' said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.

Housing prices, the largest basket item with a 39 per cent share, dropped 1.6 per cent month-on-month in July and inflow of new housing units is expected to keep the market weak in the coming months. Transport prices dipped by 0.1 per cent.

Food costs, which account for 14 per cent of consumer expenses in the $298 billion UAE economy, jumped 1.6 per cent month-on-month in July after a 1.4 per cent increase in June.

The UAE said in May it would fix the cost of about 400 foodstuffs and household products until the end of the year.

It has also called on retailers to offer discounts of up to 50 per cent during Ramadan.

'Although there might be a short-term upside push from the 'Ramadan effect', we see price pressures remaining benign at least for the rest of 2011,' said Liz Martins, senior Mena economist at HSBC in Dubai.

UAE Economy Minister Sultan bin Saeed al-Mansouri said in May he expected inflation between 1 and 1.5 per cent this year.

A survey showed this month that private sector business activity in the UAE expanded at its slowest pace in seven months in July as output rose at the weakest rate for a year and new order growth slowed sharply.

The second largest Arab economy is seen expanding by 3.7 per cent this year after a 1.4 per cent growth in 2010, when the UAE trade and financial hub Dubai grappled with a debt crisis in some of its state firms. – Reuters