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29 March 2024

Saudi inflation to fall to 4.8% in 2011

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By Staff

Lower housing and food prices will likely depress inflation in Saudi Arabia to around 4.8 per cent in 2011 from 5.3 per cent in 2010 and the decline has already been felt through August, a local study said on Sunday.

Year-on-year inflation eased to 4.8 per cent in August from 4.9 per cent in July, primarily due to a fall in food price inflation, though in monthly terms food prices posted their normal Ramadan jump, the Riyadh-based Jadwa Investment said in its monthly inflation report, sent to 'Emirates 24|7'.

It said lower food price inflation caused the decline in overall inflation in August while inflation for most other components of the cost of living index rose.

The report showed year-on-year food inflation will recede to around 5.8 per cent in 2011 from 6.2 per cent in 2010.

Housing prices will rise by nearly 7.7 per cent against 9.5 per cent while other components of the consumer price index will record relatively stability. “The pick up in inflation elsewhere was fairly subdued. Inflation for clothing and footwear was at its highest level since July 2009, but after several years of falling prices, prices of clothing and footwear are only back to where they were in July 2008. The continued upturn in rental inflation may reflect increased public-sector pay and bonuses encouraging more people to enter the rental market.”

The report cited government data showing inflation has been between 4.6 per cent and 4.9 per cent since February despite an increase in government spending and a surge in consumer spending. “Survey results and money supply data point to inflationary pressures in the economy, which are likely to push inflation above 5 per cent in the coming months, but these pressures are less than we had expected,” it said.

“As a result, we have cut our forecast for average inflation in the kingdom this year to about 4.9 percent from 5.4 per cent.”

Inflation in Saudi Arabia stood at 5.1 per cent after soaring to its highest annual rate of 9.9 per cent in 2008 because of the weakening of the US dollar, to which the Saudi riyal and other Gulf currencies are pegged. Other factors included strong domestic demand due to a surge in oil prices, higher global food prices and a surge in local rents because of supply bottlenecks.

“All the other components of the cost of living index either fell or were unchanged in August. Prices for clothing and footwear, home furniture and education and entertainment all dropped for the first time this year,” Jadwa said.

“These sectors are an important guide to the inflation in the kingdom that is being triggered by higher consumer spending.”