The decline in the petroleum prices would result positively on inflation as there would be a slowdown in the rise of prices.
On Thursday, the UAE Ministry of Energy further cut the petroleum prices by up to seven per cent and diesel prices by 15 per cent for February, which will cut the transportation cost significantly.
"Lower prices for petroleum products reinforce the competitiveness of non-oil sectors by lowering the cost of transportation," said Mathias Angonin, analyst sovereign risk group at Moody's Investors Service.
However, he said the drop in petroleum prices reflects a similar drop in global oil prices, which is a net negative for the UAE.
On what impact it would have on inflation, he said: "The drop in petroleum prices will likely have a mild disinflationary effect in the UAE."
"CPI inflation was 3.6 per cent as of December, down from 4.9 per cent in August. Transportation costs, which make up 9.9 per cent of the CPI basket, fell 1.5 per cent year-on-year as of December and are likely to drop further along with the price of petroleum products," Angonin said.
National Bureau of Statistics (NBS) showed consumer price index (CPI) in the UAE increased 3.52 per cent in December 2015 in comparison to December 2014, primarily driven by cost of housing and utilities.
Inflation averaged 2.4 per cent from 1990-2015, reaching an all-time high of 12.3 per cent in December 2008 and a record low of -1.6 per cent in January 2011.
Inflation in the UAE has two sources - domestic and imported. Domestic inflation components are: Housing and utilities, maintenance, health-care, transport, education, recreation and culture, miscellaneous goods and services, restaurants and hotels partially 70-30, and telephone bills.
Imported inflation components are: Food and beverages; clothing and footwear; furniture; textiles and home appliances; partially restaurants and hotels 70-30, and health-care partially.
