| 05 Aug 2008 |
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Inflation: Govt action needed
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IN April, the head of the Saudi Arabian Monetary Agency (SAMA)Saudi Arabian Monetary Agency (SAMA)
, Hamad Al-Sayari, warned that inflation in the Kingdom could cross the 10-percent threshold. However, he thought it would ease in the second half of the year as the government's anti-inflationary measures took hold and global demand for commodities fell. He was spot-on about the first part. Inflation, according to the government's own figures, hit a 30-year high in June: 10.6 percent, as opposed to 10.4 percent the previous month. Expatriates are worst hit as most of them work in the private sector.
It must be hoped that the second part of the SAMASAMA prediction, that inflation will now start to reduce, will prove true. But on present form, there are strong grounds for thinking otherwise. There is no sign that the global commodities boom is over or even slowing down. On the contrary, economists, particularly in the US, expect another 12 months of rising commodity prices. Only in mid-2009 do they anticipate a fall. That may explain the forecast from the Samba Financial Group that inflation will continue to rise. It expects that it will average between 11 and 12 percent this year before easing to around 10 percent next year.
It must be said that the prospect of inflation "easing" to 10 percent next year or the notion that June's 30-year high is "containable" (as one Saudi-based banker said) will be greeted with deep concern by many who find present prices beyond their means. Moreover, if 11-12 percent is the expected average inflation for this year, then that suggests that it is going to rise even higher before 2008 is finished.
Further government action is needed, and fast. But the options are not easy. High oil prices feeding into massive government spending on infrastructure and the building of new economic cities has inevitably fueled inflation but it would be a folly to cut back there: This country needs to build new industries and economic zones; without them and the jobs they will bring, the future is unthinkable. As to the global commodities' boom, it has been a significant factor and may necessitate increased subsidies, but it is not the only cause for inflation. The same goes for the fall in the dollar to which the riyal is pegged. Its effects, moreover, have been overstated. In June, it fell around 1.25 percent against the euro and against the yen it actually rose. That hardly explains a 15.8-percent rise in Saudi food prices in the same period.
There is another factor against which the government can act -- and should be active punitively: Greed.
There are property owners and businessmen who are putting up prices because everyone else seems to be doing it, because they can blame it on the dollar, on global prices, the costs of energy or whatever -- and they have been getting away with it because no one challenges them. The government needs to look at the whole area of rentals and food pricing. It needs to bring in mechanisms to enforce competition. And it needs to take action against those who are profiteering.
© Arab News 2008
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