Saudi inflation eases to 4.9% in June

Saudi Arabia's annual inflation eased to 4.9 percent in June, its lowest level since September 2011, despite a big rise in housing prices, an official statement said yesterday. Inflation slowed from 5.1 percent in May. The month-on-month rate in June was unchanged from 0.2 percent in May, according to the Central Statistics Department. The cost of living index rose slightly from 140.5 in May to 140.8 in June as a result of increase in prices in four groups, especially the group of reparation, rents, energy and water (0.6 percent) and food and beverages 0.3 percent. Ihsan Bu-hulaiga, a Saudi economist, said: "There is an inflationary pressure due primarily to increased spending by the government. Saudi economy is growing in real terms, so the growth is compounded by a high level of inflation." He said inflation pressure should be eased to a more comfortable level. "The targeted inflation rate should break below 3 percent then only people will feel the impact," Bu-hulaiga added. Paul Gamble, chief economist and head of research at Jadwa Investment, said: "Falling international commodity prices continued to pull down inflation. With the dollar (and therefore the riyal) strong and little inflation in the global economy, the main inflationary pressures in the Kingdom are domestically driven. It is therefore encouraging that there was a fall in rental inflation in June. Inflation should pick up in July and August in line with the seasonal trend in food prices ahead of and during Ramadan." Commenting on yesterday's inflation report, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: "The inflation figure was largely expected. Recent trends have pointed to a gradual waning of inflationary pressures, largely as a result of the ongoing commodity price corrections globally, which have made food prices a far less important source of inflation than was the case earlier." He said: "The stronger dollar has somewhat reduced imported inflation. It is also likely that some of the additional liquidity from last year's stimulus measures may be waning. But it is clear that the homegrown structural drivers of price pressures are important and persistent. Most important among these is the housing market where a major shortage will continue to put pressure on rents." Kotilaine said: "Even though more money is going to go into property development with a view to alleviating the problems, this may prove a slow process and its impact on rentals somewhat discontinuous now that the mortgage law has been approved." Overall, he said the near-term outlook for inflation is likely to be more of the same, broadly speaking. Prices of housing, rents and water jumped 8.8 percent from a year earlier in June. Other price categories were relatively subdued; food prices, which account for 26 percent of Saudi consumer expenses, climbed 4.7 percent in June and clothing gained 2.9 percent. From arabnews