18/08/2009
Saudi Arabia's annual inflation rate fell to 4.2 percent in July, its lowest level in two years, due mainly to a slowdown in the rise of home rents and food prices, official data showed on Monday.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 major oil exporter, which pegs its riyal to the dollar.
Saudi Arabia's cost of living index stood at 122.2 points in July versus 121.5 points in June, the official Saudi Press Agency said citing data from the statistics authority. Annual inflation in June reached 5.2 percent. [ID:nLQ654812]
"The index recorded in July an increase of 4.2 percent compared to the same period last year," the agency said.
According to Reuters' historical data, the index stood at 117.3 points in July 2008, which led then to an annual inflation rate of 11.1 percent, the highest in at least 30 years, as the economy boomed and global commodity and oil prices soared.
Last month's rate puts inflation at its lowest rate since July 2007, when it recorded an annual increase of 3.83 percent.
"Inflation is declining faster than expected which is good news and could bring ... year-end inflation to below 3.7 percent," said Riyadh-based economist John Sfakianakis who attributed the decline to lower demand.
The annual rise in the rental index -- which includes rents, fuel and water -- eased to 13.5 percent in July down from 15 percent in June and 17.7 percent in May, the agency said.
For food and beverages the annual increase was 1 percent in July down from 1.7 percent in June and 2.4 percent in May, it added.
"Lower demand is driven by an overall economic slowdown facing Saudi Arabia especially its private sector which affects commercial rents ... Rent inflation is overall being pushed down by the commercial side not necessarily housing which is still seeing strong demand," Sfakianakis said.
Analysts expect the start of the Muslim fasting month of Ramadan around Aug. 21 to cause a spike in food prices as families stock up for evening meals but some retailers have disputed this argument.
"For sure retailers will find it hard to hike prices in a demand-suppressed economy this year," Sfakianakis said.
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. Imported labour adds to pressures generated by rapid demographic growth among the native population of over 17 million.
