Saudi Arabia is understating its real inflation problem and this could hurt the economy and hamper government efforts to tackle the problem, a Saudi official said yesterday.

"The inflation problem is still in the beginning and we should not downplay its dangers," said Abdul Aziz AL Orairi, a member of the Shura council (appointed parliament).

"The Saudi citizens are still suffering from high prices and a decline in the living standards," he told a Shura session, quoted by Saudi newspapers. Al Watan quoted him as criticising recent newspaper reports, citing Saudi official comments, that inflation has started to decline. "These reports are not realistic and incorrect… they give the impression that the [inflation] problem is over and the efforts have succeeded in tackling the problem which threatens our country's economy," he said.

"Such reports about the decline in inflation rates will only obstruct the efforts to tackle inflation, which is adversely affecting our economic growth."

After years of relative stability, inflation in Saudi Arabia surged to 4.1 per cent in 2007 and approached double digit levels over the past few months. Saudi analysts expect the rate to exceed eight per cent this year and could even hit double digit levels if a 17-point government alleviation strategy failed to curb soaring prices.

Like other Gulf oil producers, Saudi Arabia has started to reel under high inflation rates mainly because a surge in rents and food prices, and the weak US dollar, to which its riyal is pegged.

"Rents and food prices remain the main sources of inflation, but the price rises are now spreading. In year-on-year terms inflation picked up in each of the eight subcomponents of the cost of living index in February. This spread of inflation will complicate policy to contain it. We have revised up our forecast for inflation for this year to average 8.2 per cent," said Brad Bourland, chief economist at the Saudi Jadwa Investment in Riyadh.