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Saudi inflation declines to 5.3%

By By KHALIL HANWARE JEDDAH: Saudi Arabia's annual inflation rate fell to a nine-month low of 5.3 percent in January from 5.4 percent in December -- its lowest level since April 2010. This also marks the fifth consecutive month of decline.

According to data from the Central Department of Statistics, food prices fell more sharply, outpacing a rise in rents and transport costs. On a month-on-month basis, inflation stood at 0.1 percent in January, unchanged from December, Reuters said.

Consumer prices are expected to climb higher this year, lifted by soaring global food prices.

In January, Saudi Arabian Monetary Agency Gov. Muhammad Al-Jasser said he was worried a global rise in food prices this year may drive up inflation in the imports-reliant Kingdom.

In year-on-year terms, inflation declined across most components of the cost of living index. The most notable fall was in food price inflation, which dropped from 7.6 percent to 6.8 percent. Although global food prices have risen so far this year (the UN Food and Agriculture Organization's food price index hit a record high in January) large falls in the prices of some key foodstuffs were recorded in the Kingdom last month.

But given the continued rise in international food prices, it is likely that food price inflation in the Kingdom will remain high, the Riyadh-based Jadwa Investment said in its inflation report.

Commenting on the latest inflation report, John Sfakianakis, chief economist at Banque Saudi Fransi , said inflation for the month of January fell and we could see another small drop for a month or two. January year-on-year inflation at 5.3 percent is at the same level as the annual average for 2010 and it is lower than the 6.1 percent witnessed in the summer of 2010.

"Global commodity prices, especially food, will begin to feed into local prices and food inflation will begin to increase and as a result push upward average inflation. Global food prices are expected to rally this year given supply concerns and weather patterns which put downward pressure on essential crops such as wheat and rice," Sfakianakis added.

Food prices, which have the largest 26 percent weight in the basket, fell 0.5 percent on a monthly basis in January compared to a rise of 0.1 percent the previous month.

Jarmo T. Kotilaine, chief economist at the National Commercial Bank (NCB), told Arab News: "The data is naturally encouraging in view of the general backdrop of mounting inflationary expectations globally and especially in emerging markets. But the structural drivers of inflation, chief among them global food price pressures, are still generally alarming. While there is little reason to believe that housing costs will significantly accelerate, the respite in food price inflation may prove fairly temporary.

"The past year has been characterized by a string of weather-related harvest failures and food price inflation is presenting itself as a major concern. But relief, even temporary, is naturally welcome under the circumstances."

Sharp declines in food prices were offset by a rise in rental costs which rose 0.8 percent in January. Transport costs were up 0.7 percent in January compared to 0.4 percent in December.

© Arab News 2011