Saudi inflation to pick up in 2011

Inflation in Saudi Arabia ticked up to 4.7 per cent in June from 4.6 per cent in May and the rate is expected to gain momentum in the second half of 2011 because of high public spending and other factors, a local report has said.

The slight rise in year-on-year inflation in June was a result of a small increase in rents and price rises elsewhere that appear related to higher consumer spending, said the report by the Riyadh-based Jadwa Investments.

Jadwa said that although the June rise was very modest, it is notable that it was the result of increases in prices that are largely driven by domestic consumer demand, rather than international factors such as commodity prices.

Year-on-year inflation for home furniture was at its highest since September 2010, education and entertainment was at a 16-month high and clothing and footwear inflation was positive for the first time since August 2009, it said.

“We think these price rises reflect the additional spending stimulated by the bonus awarded to all public-sector and many private-sector workers. Rental inflation also rose, for the first time since last September, though the increase was only slight,” said the study, sent to Emirates 24/7.

“For the first half of the year, inflation averaged about 4.8 per cent, hovering around 4.7 per cent for each of the last four months…. we think inflation will rise in the next few months. The impact of stronger consumer demand and higher government spending will continue to grow.”

In addition, in July there is likely to be some upward pressure on food prices, in line with the normal trend in the run-up to Ramadan, Jadwa added.

The study showed that monthly inflation stayed at 0.4 per cent for the third month in a row in June. Rental inflation was around one per cent, its highest level since May 2010.

“It is possible that landlords have raised rents in response to the bonus for public-sector workers. As rents are generally paid on an annual or semi-annual basis, this would take some time to be fully reflected in the data,” the report said.

“The rise in monthly inflation for home furniture (primarily living-room furniture, fitted kitchens, tables and chairs) and education and entertainment (particularly electronic games and video equipment) looks related to higher consumer spending.”

Jadwa forecast annual inflation in Saudi Arabia to slip to around 4.8 per cent through 2011 from 5.3 per cent in 2010. The rate stood at 5.1 per cent in 2009 and was at one of its highest levels of 9.9 per cent in 2008.

Follow Emirates 24|7 on Google News.