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29 March 2024

Rents keep Saudi inflation high

Published
By Staff

An increase in rents due to higher income and slow supply growth boosted inflation in Saudi Arabia in February to its highest monthly average since late 2010, according to a local report.

Year-on-year inflation swelled to 5.4 percent in February, the highest since December 2010, from 5.3 percent in January, said the report by the Riyadh-based Jadwa Investments.

It said other domestic inflationary pressures continued to rise in the largest Arab economy and the world’s top oil supplier.

Most components of the cost of living index rose in February, owing to strong domestic demand, said the report, sent to Emirates 24/7.

“At 9.3 per cent, rental inflation was at its highest since May 2010…we think this increase is the result of rising disposable incomes among the national population… specifically some of those with jobs or new sources of income from government programs may be entering the rental market, or at least landlords are raising rents on the assumption that this will happen,” it said.

“At the same time, additions to the supply of housing continue to be small. Indications are that work on new housing construction is picking up, but it will take some time for this to reach the market.”

The report showed food prices, the largest item in the cost of living index, recorded the biggest gain in year-on-year terms in February, rising to a six-month high.

The rises were concentrated in the prices of fresh foods, which may reflect higher costs or reduced supply of products originating in or transiting through Syria, Jadwa said.

It showed global food price inflation (measured by the UN Food and Agriculture Organization's index) fell for the ninth consecutive month. Inflation for clothing and footwear, education and entertainment and home furniture continued to rise.

The report showed monthly inflation rose to 0.3 percent in February from 0.1 percent in January.

Although this was the highest for five months, it is slightly below the average monthly rise during 2011, it said.

“The jump in rents in monthly terms was much less than in January, and broadly in line with February readings in recent years (monthly rental inflation tends to be higher in the first half of the year),” it said. “Nonetheless, the rise in rents over the past three months (2.4 percent) is higher than for any three-month period since mid-2009.”

As for annual inflation, Jadwa expected the rate to rise slightly to around 5.3 per cent in 2012 from five per cent in 2011. The 2012 rate will be equivalent to inflation levels in 2010 but far lower than the record annual average of 9.9 percent in 2008.

In another study released on Tuesday, Saudi Arabia’s largest bank said consumer prices are expected to remain range bound this year and average around 4.8 per cent.

National Commercial Bank (NCB) said pressures from the real estate market have picked up by nearly 9.3 per cent year/on/year as the government-controlled Real Estate Development Fund announces additional measures to increase homeownership.

“Additionally, the expanding monetary base risks supporting elevated consumer prices as M0 and M3 rose by 27 and 13.6 per cent, respectively throughout January,” it said.

“Consequently, credit to the private sector gained 12.1 per cent over the same period annually. SAMA is prepared to combat challenges of inflationary pressures by increasing open market operations to mop up excess liquidity.”