Saudi inflation hits 30-year high on food, rent

The cost of living index for the largest Arab economy rose to 115.5 points on June 30 from 115 points in May, the Saudi Press Agency cited a report by the Ministry of Economy and Planning’s Central Department of Statistics. “We could be reaching some kind of plateau within three months but we don’t see a rampant inflation that is out of control,” said John Sfakianakis, chief economist at SABB bank, HSBC’s subsidiary in Saudi Arabia.

Inflation is a key challenge across the Gulf Arab region, where currencies are pegged to the ailing dollar, as their economies surge on windfall revenues from oil that has been racing to record highs. The index was 104.4 points on June 30, 2007, according to data of the department.

Food and beverage costs advanced 15.8% in June compared with an increase of 15.1% in May while the rental index -- which includes rents, fuel and water -- soared 18.7% versus 18.5% in May.

Monthly inflation in Saudi Arabia added 0.5 points in June compared to May when it reached an annual 10.4%. It hit 10.5% in April, its highest level in more than 30 years. In May, it dropped 0.2% month on month after adding 0.9% month on month in April. “Compared to the first quarter, monthly inflation has not been growing as fast as in the second-quarter,” Sfakianakis said.

Saudi Arabia’s annual inflation may hit its peak towards the end of the third quarter which coincides with the end of Ramadan, the Muslim fasting month which sees a surge in both consumption and prices, he said. While food prices should continue to rise, the summer lull may ease the rise of the rental index component, Sfakianakis said. “This does not necessarily mean that it will decline, since business activity slows down in summer before picking up afterwards,” he said.

Saudi Arabia is the world’s largest oil exporter and the region’s most populous nation. The country has dismissed changing its foreign exchange regime and has instead raised public sector wages, sought to control money supply’s growth while boosting subsidies for food and public services and curbing public spending.

Dollar pegs force the Gulf Arab states, bar Kuwait, to track the United States in cutting interest rates. With the dollar tumbling this year to record lows against the euro and a basket of major currencies, some imports have become more expensive. (Reuters)