Saudi Arabia's annual inflation accelerated last month as the Gulf's largest economy emerged from a year of financial crises.
Saudi inflation climbs to 4%
RIYADH // Saudi Arabia's annual inflation accelerated last month as the Gulf's largest economy emerged from a year of financial crises and looked forward to expansion next year. Inflation climbed to 4 per cent from its lowest level in more than two years in October, as rents and import costs grew. Economists expect the trend to continue into next year as the government increases spending on projects.
"I expect inflation to increase next year as Saudi Arabia emerges from the challenges of the financial crisis," said Mahdi Mattar, the head of research and chief economist at Shuaa Capital. "Government expenditure will put pressure on inflation." The financial crisis has eased inflationary pressure around the region from record levels last year as the price of oil peaked at US$147 a barrel and property prices recorded double-digit gains. Now price pressures are expected to return across the Gulf as the region recovers from this year's downturn.
The kingdom's cost of living index stood at 124.7 points last month, up from 119.9 points a year earlier, data from the official statistics authority showed. Annual inflation reached 3.5 per cent in October, its lowest level since June 2007. "The rise is a combination of imported inflation, mainly higher costs of foodstuffs as well as the usual domestic inflation suspects - It could indicate a pickup in domestic demand," said John Sfakianakis, the chief economist at Banque Saudi Fransi, Calyon's Saudi affiliate.
The government has estimated annual inflation to reach 4.4 per cent on average this year, below a record high of 9.9 per cent last year but above an average 2.3 per cent seen in the previous three years. Home rents recorded an annual rise of 14.1 per cent last month, down from an increase of 14.3 per cent in the previous month. Inflationary pressure is also expected to rise in the UAE next year. Crude oil, the main UAE export commodity, is priced in dollars and the US currency's weakness makes imports more expensive.
Consumer prices in the Emirates rose slightly last month after four straight declines. The price of a basket of consumer goods and services rose 0.2 per cent last month from the same period a year ago, data from the National Bureau of Statistics showed. Inflation for the first 11 months of the year was 1.7 per cent. * With Reuters