Saudi inflation increases for sixth month in July

Riyadh: Saudi Arabia's inflation rate increased for a sixth month in July to 6 per cent as the costs of food and rent rose in the Arab world's biggest economy.

The gain exceeded the 5.6 per cent median estimate in a Bloomberg survey of six economists. Their forecasts ranged from 5.3 per cent to 5.8 per cent. Consumer prices rose 5.5 per cent in June from a year earlier.

Saudi Arabia's central bank said earlier this month that it anticipates the cost of living will pick up in the third quarter as growth accelerates. The Saudi Arabian government forecasts an expansion of more than 4 per cent this year after 0.6 per cent in 2009, a seven-year low.

The costs of fuel, rent and water will contribute to inflation, though the pressures will not be "acute", the Saudi Arabian Monetary Agency said in a report released on August 12.

The central bank last year cut the repurchase rate to 2 per cent, the lowest since 2004, and the reverse repurchase rate to 0.25 per cent.

Accelerating inflation since late 2009 doesn't warrant a "different course of action" in monetary policy, central bank Governor Mohammad Al Jasser said in May.

Momentum

Analysts expected consumer prices in the world's top oil exporter to gather momentum again as the Gulf Arab kingdom recovers from last year's slowdown.

The largest Arab economy is seen expanding by 4.7 per cent this year following a mere 0.6 per cent growth in 2009, helped by recovery in crude prices and generous government spending.

The Saudi Arabian Monetary Agency (Sama) said earlier this month it did not expect heavy inflationary pressures in the third quarter. However, they are likely to continue on higher rents and energy costs as well as food prices, which are seen elevated due to Ramadan.

"It verifies my expectations that food so far for seven months of the year is the cause of a build-up in inflation. My expectation is that food prices will remain sticky."

"There is also a gradual increase in rental inflation upwards. Rental inflation will continue to build up in the second half of the year," said John Sfakianakis, chief economist of Banque Saudi Fransi in Riyadh.