16 June 2013
Saudi Arabia's inflation rate for May slowed to 3.8 percent year-on-year compared with 4 percent in the previous month, According to the Central Department for Statistics and Information (CDSI).
Despite being the lowest so far this year, inflation in the Kingdom remains high relative to main trading partners. On a monthly basis, prices slightly eased to 0.1 percent in May compared with 0.2 percent in April, The Riyadh-based Jadwa Investment said in its inflation update.
Saudi core inflation, which excludes food and housing-related services, also eased to 2.6 percent year-on-year in May compared with 3.4 percent in April. In fact the fall in core inflation was the main cause of lower overall inflation while the contribution of rental and food inflation increased. The lower core rate was driven by falling prices across its main components, namely clothing and footwear, transport, furnishings, household equipment and maintenance, recreation and culture, and restaurants and hotels segments, all of which represent 64 percent of the core index, the report said.
Food inflation continued to trend upward though at slower pace than in last month. Food prices rose by 0.2 percent month-on-month in May compared to 0.9 percent in April.
On annual basis, however, the rise in food prices remained high by historical standards. Such significant increase in annual food prices also put the food segment as the largest single contributor to overall inflation, adding 1.5 percentage point (pp). According to the CDSI's statement, all subcomponents of the food and beverage group increased last month compared with a year earlier. The food price increases are in line with the trend of the IMF's food price index which increased by 7.6 percent year-on-year in May. The FAO food price index also maintained a positive trend for the second consecutive month, rising by 5.1 percent in May.
The rent and housing-related services price index accelerated to 3.6 percent year-on-year in May, up from 3 percent in April, adding 0.9pp to the headline inflation, the highest contribution since May last year. Such acceleration in the rate of inflation for the housing segment is most likely due to higher rental inflation which registered 4.2 percent year-on-year in May compared with 3.4 percent the previous month, the Jadwa report said.
On monthly basis, rental prices increased by 0.7 percent in May compared to their level in April. Jadwa said, this acceleration in rental inflation is in line with its view that housing inflation is expected to remain elevated this year before gradually easing next year, though further delays in the government housing inductivities are likely to keep rental inflation high.
While the external factors contribution to inflation in the Kingdom will remain subdued owing to a stronger US dollar and low trading partner inflation rates, domestic inflationary pressure to remain relatively strong particularly ahead of Ramadan and into the Eid holidays.
High consumer spending, rising bank lending and exceptionally low interest rates and rising demand deposits will maintain the current demand pull inflation. While it is expected that the recent labor market reform initiatives will lead to a cost-push inflationary pressure, the current trend shows this is not the case, at least for now.
The fall in core index supports the view that food (demand driven) and housing (shortage of supply) are the main drivers of headline inflation. Furthermore the staff cost segment of the recent HSBC's Purchasing Managers' Index points to unchanged staff costs in the last few months.
Saudi Arabia's inflation rate for May slowed to 3.8 percent year-on-year compared with 4 percent in the previous month, According to the Central Department for Statistics and Information (CDSI).
Despite being the lowest so far this year, inflation in the Kingdom remains high relative to main trading partners. On a monthly basis, prices slightly eased to 0.1 percent in May compared with 0.2 percent in April, The Riyadh-based Jadwa Investment said in its inflation update.
Saudi core inflation, which excludes food and housing-related services, also eased to 2.6 percent year-on-year in May compared with 3.4 percent in April. In fact the fall in core inflation was the main cause of lower overall inflation while the contribution of rental and food inflation increased. The lower core rate was driven by falling prices across its main components, namely clothing and footwear, transport, furnishings, household equipment and maintenance, recreation and culture, and restaurants and hotels segments, all of which represent 64 percent of the core index, the report said.
Food inflation continued to trend upward though at slower pace than in last month. Food prices rose by 0.2 percent month-on-month in May compared to 0.9 percent in April.
On annual basis, however, the rise in food prices remained high by historical standards. Such significant increase in annual food prices also put the food segment as the largest single contributor to overall inflation, adding 1.5 percentage point (pp). According to the CDSI's statement, all subcomponents of the food and beverage group increased last month compared with a year earlier. The food price increases are in line with the trend of the IMF's food price index which increased by 7.6 percent year-on-year in May. The FAO food price index also maintained a positive trend for the second consecutive month, rising by 5.1 percent in May.
The rent and housing-related services price index accelerated to 3.6 percent year-on-year in May, up from 3 percent in April, adding 0.9pp to the headline inflation, the highest contribution since May last year. Such acceleration in the rate of inflation for the housing segment is most likely due to higher rental inflation which registered 4.2 percent year-on-year in May compared with 3.4 percent the previous month, the Jadwa report said.
On monthly basis, rental prices increased by 0.7 percent in May compared to their level in April. Jadwa said, this acceleration in rental inflation is in line with its view that housing inflation is expected to remain elevated this year before gradually easing next year, though further delays in the government housing inductivities are likely to keep rental inflation high.
While the external factors contribution to inflation in the Kingdom will remain subdued owing to a stronger US dollar and low trading partner inflation rates, domestic inflationary pressure to remain relatively strong particularly ahead of Ramadan and into the Eid holidays.
High consumer spending, rising bank lending and exceptionally low interest rates and rising demand deposits will maintain the current demand pull inflation. While it is expected that the recent labor market reform initiatives will lead to a cost-push inflationary pressure, the current trend shows this is not the case, at least for now.
The fall in core index supports the view that food (demand driven) and housing (shortage of supply) are the main drivers of headline inflation. Furthermore the staff cost segment of the recent HSBC's Purchasing Managers' Index points to unchanged staff costs in the last few months.
© Arab News 2013
