Saudi inflation dips below 4%

Decline was a result of lower rents and food prices

Inflation in Saudi Arabia dipped below four per cent in August for the first time in nearly three years because of lower rents and food prices.

Year-on-year inflation dropped to 3.8 percent from four percent in July, the first time since October 2009, the Riyadh-based Jadwa Investment said in a study. “Lower food and rental inflation caused most of the fall, yet both remained the most contributor adding 2.8 percentage point to the rise in the overall inflation index,” said the study, sent to Emirates 24/7.

It said both rental and food inflation fell to their lowest level this year in August, adding that rents for flats continue to outpace those for villas, growing at 11 percent and 5.7 percent in year-on-year terms, respectively.

“While we do not think that the recently-approved mortgage law will have a short-term impact on rental inflation, the decline suggests that more new housing stock is entering the market particularly given the strong construction sector performance over the last year.”

Within the food category, the report showed, prices of cereal and cereal products slipped by 1.1 percent while meat and poultry prices rose by 1.1 percent.

For the overall food group, the slower inflation is mostly due to a large base effect in August 2011, it added.

“Year-on-year inflation has now fallen for six consecutive months despite seasonal factors during the last two months. We think that a temporary pick-up in food inflation may happen over the next few months owing to summertime droughts in the US and Eastern Europe,” it said.

“While overall international food prices eased in August this is mainly due to sharp fall in sugar prices which offset rising meat and dairy prices.”

Jadwa projected annual inflation to slip to around 4.6 per cent in 2012 from five per cent in 2011 and 5.4 per cent in 2010. Inflation in Saudi Arabia, the world’s dominant oil exporter, soared to its highest annual level of 9.9 per cent in 2008 following a sharp rise in rents, world food prices, strong domestic demand and a weakening in the US dollar, to which the Saudi riayalis pegged.

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