Inflation pressures likely to continue in Saudi Arabia

Riyadh: Saudi Arabia, the Arab world's largest economy, may continue to see inflationary pressures in the second quarter of this year mainly due to rent and food prices, the Saudi Arabian Monetary Agency, or Sama, said yesterday.

But recent data shows that inflation rates in 2012 are growing at a slower rate than those of 2011, Sama said in a report posted on its website.

For instance, first quarter inflation rate slowed down to 0.6 per cent compared with 1.5 per cent in the same period last year.

Saudi Arabia's annual rate of inflation edged down to 5.3 per cent in April from 5.4 per cent in March, mainly due to lower food prices, data from the Central Department of Statistics and Information (CDSI) showed on Thursday.

Rent, fuel and housing-related services rose 9.2 per cent in April from a year earlier, compared with an 8.9 per cent jump in March. Food and beverage prices dropped 4.3 per cent from a year earlier, compared with a 5.1 per cent rise in March, the CDSI said.

Saudi Arabia imports the bulk of its food needs.

Interest rate change

The Saudi Arabian Monetary Agency, the country's central bank, has repeatedly said that inflationary pressures caused mainly by an increase in global food prices are worrying, but the central bank sees no need to change interest-rate policy.

Economists expect inflation in the world's top oil exporter to remain higher than its historic average of 1 per cent as the government continues to post expansionary budgets.

Saudi rents and property prices are rising as the kingdom struggles with a housing shortage, which could push the annualised inflation rate as high as 7 per cent later this year, up from 5.2 per cent in 2011, they say.

Spending programmes announced last year by King Abdullah, which are likely to cost the government at least 485 billion Saudi riyals (Dh474.99 billion) over several years, could also add to inflationary pressure in the kingdom.