Saudi inflation up on rents, food

High rents allied with rising food and gold prices to push up inflation in Saudi Arabia in July although the increase is not a source of concern for the Gulf Kingdom this year, according to a local investment firm.

Year-on-year inflation rose to 4.9 per cent in July from 4.7 percent in June and food, rents and higher prices of jewelry and those for holiday accommodation were the main cause of the rise, though there were some notable falls, the Riyadh-based Jadwa Investment said in a study sent to Emirates 24/7.

Inflation edged up to its highest level since February in July, though it has effectively been stable over the past six months, the report said.

While the monthly increase was the highest in three years, in year-on-year terms none of the components of the cost of living index rose particularly rapidly.

Food prices increased in line with the trend ahead of Ramadan (prices tend to rise less once Ramadan has begun) and rents picked-up, the report said.

“Other expenses and services remained the main source of inflation.  This component is heavily influenced by the impact of gold prices on the cost of jewelry and this was a contributory factor to rise,” it said.

“However, the main cause was a surge in the price of furnished flats and villas rented by holidaymakers in the Kingdom.”

The study showed medical care and transport and telecommunications saw large falls in inflation in July due to base effects as the big jumps in the prices of both in July 2010 drop out of the annual comparison.

Prices of home furniture and education and entertainment goods maintained their upward trend of the past few months, it said.

“Given the price pressures associated with Ramadan and the holiday season and continued high levels of consumer and government spending, an inflation rate of below five percent suggests that rising prices may be less of a concern than many had anticipated,” Jadwa said.

“In monthly terms inflation was the highest since July 2008, at 1.2 percent, driven by food prices and ‘other expenses and services’. It is normal for food prices to rise ahead of Ramadan… the one percent rise in food prices in July compares to an average of 0.1 percent for the first six months of the year.”

This was exacerbated by a rise in cigarette prices (which are captured in the food component of the inflation index) to SReight from SRseven per packet in June.

According to the study, the surge in inflation for ‘other expenses and services’ was mainly the result of higher prices for holiday accommodation.

“Regional unrest has encouraged more Saudis to holiday in the Kingdom and in response the price of furnished flats jumped by 28.3 percent in July…..the increases were highest in Taif and Tabuk cities….. vehicle maintenance and repair costs pushed up transport and telecoms inflation.”

Jadwa expected annual inflation in the largest Arab economy to drop to around 4.8 per cent this year from 5.3 per cent in 2010. The rate stood at about 5.1 per cent in 2009 and as high as 9.9 per cent in 2008.

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