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Last month, the committee lowered diesel price by 29 per cent to Dh2.05 a litre from Dh2.35, while petrol price was hiked 24 per cent to Dh2.14 a litre.

Average increase of 19% in petrol prices in two months expected to have minimal impact on inflation.

In its monthly price adjustments, the Ministry of Energy on Thursday lowered domestic prices for petrol and diesel for September.

While diesel price was slashed by 18 per cent, the price for a litre of petol was reduced by 8.5 per cent, in line with developments on the international oil market.

All pumps will retail diesel at Dh1.86 per litre. Petrol will be sold to consumers at Dh1.89 per litre for E-plus (Octane 91), Dh1.96 for Special (Octane 95) and Dh2.07 for Super (Octane 98), the ministry said, after a meeting of the Fuel Price Committee chaired by Dr Matar Al Nyadi, Undersecretary at the Ministry of Energy, and attended by officials of Adnoc Distribution, Enoc and other oil companies. The new prices will come into effect on September 1, 2015.

Last month, the committee lowered diesel price by 29 per cent to Dh2.05 a litre from Dh2.35, while petrol price was hiked 24 per cent to Dh2.14 a litre.

E-Plus 91 was increased to Dh2.06 a litre from Dh1.61, and unleaded gasoline 98 was hiked to Dh2.25 a litre from Dh1.83.

"The prices are based on the average global prices for diesel and petrol with the addition of operating costs and profit margins of the distributing companies," Dr Al Nyadi said.

The lower setting of the fuel prices in September and the softer outlook for global oil prices point to a slightly weaker impact of the price reforms on inflation, said Dr Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Taking into account the petrol prices for August and September, the average increase is around 19 per cent, which will likely result in a 0.6-0.8 percentage point increase in inflation, she said. It seems that after the initial adjustment to the fuel price in August, market movements are playing a greater role in setting prices.

The UAE’s overall inflation rose to 4.43 per cent year on year in July, highest in six years. The International Monetary Fund forecast inflation to rise to 3.8 per cent in 2015 against 2.3 per cent in 2014.

Alp Eke, senior economist at National Bank of Abu Dhabi, says that in the UAE the average household spends at least 20 per cent on petrol, 11 per cent directly on transportation and minor contributions on other categories.

Even though the prices came down from 57 cents to 53.4 cents, it will definitely push the prices upwards especially  for transportation, food, restaurants, recreation etc, he believes.

The economist said the reduction in diesel prices would benefit industries and utility power generation but the average consumer will not feel its impact.

Overall inflation is still expected to rise this year due to the fact that the recent free floating regime has resulted in higher pump prices in the UAE, although house rental are on a declining trend, Eke said.

Syed Abrar Ali, general manager of Abu Dhabi-based Trans Middle East, said he is receiving calls from clients for discounts matching the reduction in fuel prices.

In the transport business, fuel is 40 per cent of the total cost, which has now dropped to 29 per cent, with the two adjustments, he said.

However, the industry cannot pass this price differential on to the consumers, as it would require prices to remain at this levels for at least four months. Otherwise, he feared, the transport firms would have to cut overheads or jobs by 12-15 per cent.

The Fuel Price Committee will next meet on September 28 to agree on the prices for the month of October.