Prices of food products, which account for the largest chunk of Saudis' spending, may rise by up to 30 per cent in 2008 due to a drop in global supplies and the US dollar's weakness, the Trade Ministry said on Saturday.
The Trade and Industry Ministry has urged Saudi importers and wholesalers to pile up "enough stocks" of the main food products, it said in its annual provisioning report.
The report signals that inflation will continue rising in the world's largest oil exporter in 2008 after it reached 5.35 per cent in October, its highest level since at least 2005.
Two ministry officials confirmed to Reuters the contents of the report carried by two local newspapers.
"The main factors are a drop in farming crops... and the decline in the dollar's exchange rate and the rise in exchange rates of other currencies," the ministry said in the report.
John Sfakianakis, chief economist at SABB Bank, said food products account for about 30 per cent in the weighting of the cost of living index, used to track inflation.
"It's the largest component ... This means that inflation will be rising and will probably be higher than in 2007," he said.
"The ministry is trying to indicate to the Saudi public that it is expecting more food inflation, at a time when inflation is an issue in the kingdom and at a time when food inflation is a global issue," he said.
Stock-piling does not help solve the problem, he said.
"The ministry said that because it feels pressured to do something," he added.
A Reuters poll of 12 economists last month showed that Saudi Arabia faces accelerating inflation in 2008 with prices rising twice as fast as they did last year, spurred by rents and a dollar-pegged currency.
Dollar pegs force central banks to track U.S. monetary policy.
The US Federal Reserve has cut borrowing costs by 100 basis points since September 18 to contain the fallout from a mortgage crisis, and most Gulf central banks have followed, even though inflation pressures at home did not warrant a looser policy.
Prices across the world's biggest oil-exporting region are rising at their fastest pace this decade, spurred by economic growth and government spending of windfall revenue from a near five-fold increase in crude prices since 2002.
Inflation is stirring discontent among migrant labour, which dominates the Gulf's workforce, forcing governments to intervene in markets, and fuelling speculation that central banks will eventually unshackle currencies from the dollar. (Reuters)
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