Saudi food inflation at record high in April

A steady rise in food prices over the past few months pushed inflation in this sector in Saudi Arabia to its highest level in April while the general inflation rate in the world’s largest oil exporter remained high compared to other countries.

Figures by the Riyadh-based Jadwa Investment, citing government data for April, showed prices slightly rising to about four percent year-on-year compared with 3.9 percent in the previous three months.

“This level of inflation remains among the highest inflation rates relative to the Kingdom’s main trading partners,” Jadwa said in a report.

It showed that on a monthly basis, prices slightly eased to around 0.2 percent in April compared with 0.3 percent in March.

The report showed core inflation, which excludes food and housing-related services, eased to 3.4 percent year-on-year in April compared with 3.5 percent in March.

Core inflation was mainly driven by the transport group (5.6 percent year-on-year) followed by restaurant and hotel (5.5 percent year-on-year).

“A major highlight of April inflation print is the food prices acceleration to 6.2 percent year-on-year compared with 5.3 percent in March,” the report said.

“This puts April’s food inflation at a record high for the new CPI classification of which data is only available for 2012-2013. Such significant increase in food prices also put the food segment as the largest single contributor to overall inflation, adding 1.5pp.”

The report said that the food price increases are in line with the trend of the IMF’s food price index, which rose by a monthly average of six percent year-on-year so far this year. The FAO food price index also reversed its negative trend to rise by around 1.1 percent in April year-on-year, according to Jadwa.

The rent and housing-related services price index eased to 3 percent year-on-year in April versus 3.1 percent in March, contributing 0.7pp to headline inflation, it showed. “Such slight ease in the rate of inflation for the housing segment is most likely due to slower rental inflation which registered 3.4 percent year-on-year in April compared with 3.7 percent the previous month. In fact, rental prices have contracted by 0.1 percent in April compared to their March level,” the report said.

“Despite the monthly contraction, we maintain over view that housing inflation is

expected to remain elevated this year before gradually easing next year as the impact of the recent government housing initiatives kicks in.”

While the external factors contribution to inflation in the Kingdom will remain subdued owing to a stronger US dollar and low trading partner inflation rates, “we expect domestic inflationary pressure to remain relatively strong.”

Jadwa said it believes high consumer spending, double-digit money supply growth, rising bank lending and exceptionally low interest rates will maintain positive inflation in areas such as home furniture, education, recreation and culture, transport, communication and medical care.