SA inflation eases to 4.9%

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. 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 Saudi 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. "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," Ihsan Bu-hulaiga, a Saudi economist, told the Saudi daily (Arab News). 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," he added. Meanwhile, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said in comments on the report that 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 noted that 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.