21/06/2009
RIYADH, June 20 (Reuters) - Saudi Arabia's annual inflation rate rose for the first time in seven months to hit 5.5 percent in May due mainly to a surge in food prices, official data showed on Saturday.
The cost of living index stood at 121.3 points on May 31 compared with 115 points a year earlier, the Central Department of Statistics said on its website.
Inflation in April was 5.2 percent, the lowest rate since September 2007.
On an annual basis, the increase in food and beverage index accelerated to 2.4 percent in May, up from 1.6 percent in April, the data showed.
Last year, when inflation peaked at more than 11 percent in July, food and beverage costs in Saudi Arabia had surged an annual 16 percent.
The annual rise in rental price however eased to 17.7 percent in May, down from 18.8 percent in April, the data showed.
Before May, inflation rates have been declining rapidly in the largest Arab economy as commodity prices slumped and a stronger U.S. dollar helped reduce import costs for the kingdom, which pegs its riyal to the dollar.
The recent fall in the value of the greenback coupled with an increase in oil prices is beginning to change this picture, said John Sfakianakis, chief economist at HSBC's Saudi affiliate.
"Inflation could be close to reaching its bottom. The dollar depreciation is hitting import costs and the recent surge in oil prices is impacting the prices of other commodities," he said.
The start of the Muslim fasting month of Ramadan, due on August 21, is expected to further spike food prices with a surge in demand, Sfakianakis said.
EFG-Hermes expects inflation to average 4.8 percent this year.
Saudi Arabia said last year it would invest around $400 billion in the next five years, mainly to enhance infrastructure in the country of around 25 million people.
These projects mean that Saudi Arabia continued to experiment a high housing demand with an increase in imported labour adding to pressures generated from a rapid demographic growth of the native population, Sfakianakis said.
"There is a limited rise in housing supply. There has been an increase in the number of expats over the past six months opposite to what happened in other Gulf Arab countries," Sfakianakis said.
