Oman May inflation at 25-mth high

Annual inflation in Oman hit the highest level in 25 months in May due to a rise in food prices, data showed on Saturday, while living costs in Saudi Arabia in June rose slightly from the previous month on food and housing components.

Inflation in the Gulf, the world's top oil exporting region, was expected to creep higher this year on robust global commodity prices, a weak dollar and increased government spending following unrest in the Arab world.

In Oman, annual inflation hit 4.4 percent in May, the highest level since April 2009, data from the country's finance ministry showed, after a 4.1 increase in the previous month.

On the month, consumer prices grew 0.4 percent in May, up from a 0.3 percent rise in April. Consumer price growth was unchanged on both annual and monthly basis in April.

Analysts expected prices in the small non-OPEC oil producer, which was hit by public unrest this year, to edge higher on robust global food and commodity prices as well as additional government spending to defuse social tensions.

"Food prices are still pretty close to all-time highs and it takes a while for these to get transferred to final consumers," said Paul Gamble, head of research at Jadwa Investment in Saudi Arabia.

Food costs, which account for the largest weight of 30.4 percent in the consumer basket, jumped by 0.9 percent month-on-month in May after a 0.3 percent dip in April.

Rents, making up 21.4 percent in the basket, were unchanged in May, the data showed.

"Retailers took advantage by increasing shelf prices when Sultan Qaboos ordered a pay hike to all Omani workers in March," Salaam al-Rahbi, a financial analyst at Muscat Financial Company, said.

The usually tranquil Gulf Arab sultanate was hit by months of protests in February, following uprisings that toppled rulers in Egypt and Tunisia. Omanis, however, called mainly for higher wages, more jobs and an end to graft rather than a change of government.

Some 100 people demonstrated in the Omani industrial city of Sohar on Friday demanding the release of their colleagues who were jailed for protesting earlier this year.

The country's finance minister said in June a $10 billion aid package pledged to Oman by its wealthier Gulf Arab neighbours was unlikely to take off this year and spending will soar 11 percent on social measures.

Analysts polled by Reuters in June forecast average inflation to reach 4.0 percent this year.

In Saudi Arabia, the world's top oil exporter, annual inflation also edged higher to 4.7 percent in June, from 4.6 percent in May, state news agency SPA reported on Saturday, quoting data from the Central Department of Statistics.

Central banks in the Gulf, which needs to import most of its food needs, have limited tools to combat price pressures as most of the region's currencies are linked to the US dollar.

On the month, price growth was unchanged at 0.4 percent for the third month in a row in June.

Analysts, however, see price pressures growing in the next month mostly due to the traditional pressure on food costs during Ramadan, which starts in August, when families enjoy larger and more elaborate meals after daylight fasting.

"We still have the pressure from international food prices," Jadwa Investment's Gamble said. "Looking ahead to July, you will start to see the pressures from Ramadan, food prices always jump during Ramadan, we would expect a higher inflation reading next month."

Food prices, which have the largest weighting of 26 percent in the consumer basket, rose by 0.5 percent on a monthly basis in June after dropping by 0.3 percent in the previous month.

Housing costs, which account for 18 percent in the basket, edged higher by 1.0 percent in June compared with a 0.6 percent increase in May.

Saudi inflation hit 5.1 percent in 2009, after a record high of 9.9 percent in the oil-boom year of 2008, well above its long-term average of around 1 percent.

Analysts polled by Reuters in June expect the kingdom's average price growth at 5.6 percent in 2011.

Worried by unrest sweeping the Arab world, Saudi Arabia has pledged to spend an estimated $130 billion, or around 30 percent of its annual economic output, on new houses, creating jobs, unemployment benefit and other measures.

Central Bank Governor Muhammad al-Jasser said in June the economy could grow around 6 percent this year rather than the 4.3 percent currently estimated due to a recently unveiled social spending package.

Follow Emirates 24|7 on Google News.