Sep 09 2011 |
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Economic policy: Central bank issues mild inflationary warning
Figures released by the Saudi Arabian Monetary Agency ( SAMA , the central bank) for July showed that year-on-year inflation in Saudi Arabia rose to 4.9%, up from 4.7% a year earlier. The month-on-month increase of 1.2% was the fastest in three years, prompting a statement from SAMA that there would be continued inflationary pressure "within moderate levels" during the third quarter. The SAMA warning was echoed by officials from the IMF, who, in their latest public information notice on Saudi Arabia's prospects, deemed the kingdom’s near-term economic outlook as "favourable", but cautioned it to "carefully monitor possible inflationary pressures". In reality, the sharp monthly increase in consumer prices is no great surprise; the onset of Ramadan generally results in higher food prices as local families, having fasted throughout the day, prepare large and elaborate meals in the evenings. This year, many families are also likely to have greater spending power, owing to the two-month salary bonus packages that were paid into the accounts of all government, and most non-government, Saudi employees earlier this year. This has in turn contributed to strong narrow money supply (M1) growth, which, although it has slowed slightly in recent months, reached 23.5% year on year in July.
The data showed that prices in the "food and beverages" segment of SAMA 's inflation basket rose by 5.8% in July year on year, up from 5.5% in the previous month. Higher property prices, which have crept up substantially this year in the wealthier neighbourhoods of Riyadh and Jeddah, pushed prices in the "housing and related items" segment up to 7.5% from 7.1% in June. The biggest driver, however, was the "other expenses and services" segment, up to 7.8% from 7.6% the previous month. This may well have been affected by the rising price of gold during July, which had a knock-on effect on jewellery prices, and is therefore also likely to be a contributory factor to further increases in this segment during August.
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