Saudi inflation accelerates in July for sixth month

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JEDDAH - Saudi Arabia's inflation rate increased for a sixth month in July to 6 percent as the costs of food and rent rose in the Arab world's biggest economy.

Consumer prices rose 5.5 percent in June from a year earlier.

Banque Saudi Fransi said on its "Saudi Arabia Economics" report on Saturday that accelerating inflation in 2010 is taking place against an improving macroeconomic backdrop supported by oil prices averaging $76 a barrel in July, higher oil production, stronger business confidence, gains in retail appetite, higher export flows, better rates of bank credit growth and greater tourist visits.

The trend of rising food prices is likely to continue in August and September, it said, adding that food prices typically go up during Ramadan, especially for meat, poultry, vegetables and fruits.

Saudi Arabia's central bank said earlier this month that it anticipates the cost of living will pick up in the third quarter as growth accelerates. The Saudi Arabian government forecasts an expansion of more than 4 percent this year after 0.6 percent in 2009, a seven-year low.

The costs of fuel, rent and water will contribute to inflation, though the pressures will not be "acute," the Saudi Arabian Monetary AgencySaudi Arabian Monetary Agency said in a report released on Aug. 12.

The central bank last year cut the repurchase rate to 2 percent, the lowest since 2004, and the reverse repurchase rate to 0.25 percent.

Accelerating inflation since late 2009 doesn't warrant a "different course of action" in monetary policy, central bank Governor Muhammad Al-Jasser said in May.

Dr. John Sfakianakis, chief economist, Banque Saudi Fransi, said inflation level has touched 5.5 percent in June, "the highest level in more than a year."

Although annual rental inflation continues to ease as supply bottlenecks are slowly resolved in the Kingdom, he said "this will unlikely prevent any drastic decrease in the headline inflation rate."

Against this backdrop, inflation forecast in 2010 will rise to 5.3 percent from 4.7 percent in expectation that the cost of food, residential rents, goods and services could stimulate prices, he noted.

"Current inflationary pressures are elevated given below trend aggregate demand, low monetary pressures and gradual private sector growth," Sfakianakis added.

© The Saudi Gazette 2010