Saudi rents up 7.2% in second quarter

Housing rents and related items surged by 7.2 per cent in Saudi Arabia in the second quarter of 2011 to keep inflation in the world’s largest oil exporter at relatively high levels despite recovery in domestic credit.

Official data showed inflation in the Gulf Kingdom slipped to around 4.5 per cent in the second quarter from 4.9 per cent in the first quarter but remained relatively high compared with other Gulf countries.

Most components of the country’s consumer price index recorded small increases or falls except rents, fuel and water, which stayed high and was the main driver of inflation in the largest Arab economy.

The report by the Saudi Arabian Monetary Agency (SAMA) showed foodstuffs and beverages were also another key factor in inflation in the country, recording an increase of around 5.7 per cent in the second quarter.

In contrast, clothing and footwear edged down by about 0.1 per cent and home furniture by 0.5 per cent.  Transport and telecommunications rose by 2.3 per cent while there was an increase by about 1.5 per cent in medical care and around 0.9 per cent in education and entertainment. Other goods and services swelled by nearly 7.7 per cent, according to SAMA.

Rents have been high in Saudi Arabia because of supply shortages and strong demand due to high population growth. High rents along with a surge in gold prices pushed up year-on-year inflation in the Kingdom by 4.9 per cent in July compared with nearly 4.7 per cent in June.

According to the Riyadh-based Jadwa Investments, inflation in July was at its highest level since February though it has effectively been stable over the past six months. Food prices increased ahead of Ramadan and rents picked-up.

“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.”

Rents were also the main reason for high inflation in Saudi Arabia through 2010 as they soared by nearly 9.5 per cent. The rise boosted the general consumer index by about 5.3 per cent from nearly five per cent in 2009.

But official data showed last year’s inflation in rents, maintenance and water, a key component of the CPI, was sharply below the 14.1 per cent increase recorded in 2009 and the 17.5 per cent in 2008, one of its highest levels.

In contrast, fabrics, clothing and footwear prices slipped 0.7 per cent in 2010 while food and beverage rose by 6.3 per cent, the second highest after rents.

Home furniture grew by 2.8 per cent while inflation stood at only around 0.4 per cent in medical care, 1.1 per cent in transport and communication and 0.8 per cent in education and entertainment. It stood at 7.2 per cent in other goods and services, according to SAMA, the country’s central bank.

High rents and food prices allied with strong domestic demand and weakening US dollar, to which the Saudi riyal is pegged, to push up inflation in the Gulf Kingdom to a record annual high level of 9.9 per cent in 2008. Other Gulf oil exporters also reeled under festering inflation, including the UAE and Qatar, where the rate climbed to an all time high of 12.3 and 15 per cent.

In a study last month, Jadwa said it expected a massive public financial initiative announced by King Abdullah over the past few months to stoke inflation in the short term due to a projected rise in spending although the initiative envisages the construction of 500,000 houses for citizens.

“For almost four years, inflationary pressures have weighed on consumers, and they will continue to do so this year,” said National Commercial Bank (NCB), Saudi Arabia’s largest bank by assets.

“The robust economic expansion in Saudi Arabia has been accustomed to inflationary measures. Officials are expected to keep the benchmark interest rate at two per cent as its policy is paralleled to the US’s. We believe prices will hover around the five per cent level for the remainder of the year as the government implements the royal decrees.”

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