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29 March 2024

Saudi inflation seen lower in 2011

Published
By Staff

Inflation in Saudi Arabia will likely ease slightly in 2011 despite a surge in prices in most components of the consumer index because of strong domestic demand, a key investment firm in the Gulf kingdom has said.

Inflation in the largest Arab economy and the world’s oil powerhouse edged up to around 5.3 per cent in 2010 from 5.1 per cent in 2009 after recording its highest annual rate of 9.9 per cent in 2008, when all other Gulf oil producers reeled under soaring inflation rates because of the weakening dollar, high global food prices and other factors.

The Riyadh-based Jadwa Investment projected inflation in Saudi Arabia this year at 4.9 per cent, which it considered as high compared with the rates in neighbouring Gulf countries this year.

The decline this year will be mainly a result of a fall in food and beverage inflation from 6.2 to 5.3 per cent and in housing rents from 9.5 to7.8 per cent. Transport and communications will edge up to 2.1 per cent this year from 1.1 per cent in 2010 while there will be a rise in education and entertainment, clothing and footwear, medical care and other expenses and services.

In its monthly inflation report for November, Jadwa said food prices rebounded from their near two-year low in October. Though at 4.2 per cent food price inflation was the second lowest this year.

Fresh fruits and fish were the main sources of food price inflation, it said, noting that food is the largest component of the cost of living index and the rise in food price inflation offset a sharp decline in inflation for “other expenses and services”.

“This component is heavily influenced by movements in jewelry and therefore gold prices and was pulled down by the drop in year-on-year gold price inflation…….the drop in gold prices so far in this month means there should be another pronounced decline in ‘other expenses and services’ inflation in the December or January data.” the report said.

It said the pick-up in inflation in most other components of the cost of living index continued, with inflation for clothing and footwear hitting a two-and-a half year high and for transport and telecoms climbing to its highest level since July 2010. Home furniture was at its highest since September 2010.

“This reflects strong consumer spending and we expect inflation from these sources to rise further in 2012...although it should stay low in absolute terms (inflation for these three components averaged 2.9 per cent) it will not put too much pressure on headline inflation. Rental inflation stayed at eight per cent after rising in each of the previous five months.”