Saudi inflation set to slow this year

Calgary, Alberta: The head of Saudi Arabia's central bank said on Friday that inflation in the kingdom, which surged past 10 per cent in April for the first time since the 1970s, is expected to slow in the second half of this year.

"Unfortunately, the forces pushing inflation are still active. We expect that it would slow down in the second half of the year as a result of the slowdown of the global economy and impact on demand of commodities," Hamad Al Sayari, governor of the Saudi Arabian Monetary Agency (Sama), told reporters after speaking at a conference in Canada.

With crude oil hitting records above $130 a barrel, forces pushing inflation in Saudi Arabia include housing and rent, and they are taking time to ease, Sayari said. Sama said last month it expects inflation in the world's largest oil exporter to keep rising through the current quarter amid an increase in government and private spending.

Signs of surging inflation throughout the Gulf Arab region keep surfacing, adding to pressure on governments to rein in money supply growth and shield people from rising prices.

Saudi Arabia's revenues have ballooned with record oil prices, but high prices will also eat into demand as the world economy suffers, a negative for the country, Al Sayari said.

Alternate energy

Record prices will also spur development of alternative energy sources, he said.

Meanwhile, Saudi Arabia has no plan to move away from pegging its currency to the US dollar, despite weakness in the greenback, he said.

Al Sayari declined to comment on whether he believed the US dollar might strengthen or weaken, but he stressed the importance of a less volatile dollar. "It is helpful for the stability of the financial markets to have more stable exchange rates," he said.