The non-oil economy in the UAE stayed strong last month as demand increased, yet businesses faced rising pressure from surging oil prices and other commodities.

This is according to the results of a business survey published on Tuesday.

The seasonally adjusted S&P Global UAE Purchasing Managers’ Index (PMI) rose to 54.8 in March from February’s figure of 54.1, highlighting improvement in operating conditions. That said, inflationary pressures associated with elevated commodity prices reached over a three-year high.

Non-oil private sector growth was predominantly driven by domestic sales, yet there was also modest expansion in new export business, according to S&P Global. 

Nevertheless, cost pressures reached a 40-month high as fuel and raw material prices increased steeply over concerns in relation to the war in Ukraine.

A robust increase in demand throughout the non-oil economy diminished the threat of rising commodity prices in March, says S&P Global economist, David Owen yet firms now face a “difficult decision” whether to pass on mounting costs or face reduced profit margins. 

“With energy and raw material costs rising around the world in response to the Russia-Ukraine war, UAE firms faced a sharp increase in purchase prices and the most marked rise in overall price pressures for more than three years,” Owen commented.

“Moreover, there is the risk that a drop in material and energy availability will add to supply chain problems that first appeared during lockdown measures,” he added.

The economist went on to say that current data still indicates that conditions are improving “for now”, noting that delivery times have reduced at the “joint-fastest rate” in close to two years.