Saudi Arabia: Inflation drops to 6.9%

On its website, the Central Department of Statistics in the Ministry of Economy and Planning said that inflation rates in Saudi Arabia has witnessed another drop during last February for the seventh consecutive month to 6.9%, the lowest rate since December 2007.

The department also said that the Saudi cost of living index rose to 120.6 points on February 28 compared with 112.8 points a year earlier, recording a slight increase of 0.1% during February, compared to January, despite the drop in prices.

Inflation rates continue to dip

Earlier last February, the Saudi Arabian Monetary Agency (Sama) projected a further drop in inflation rates during February and March 2009, after it hit a 12-month low in January, due mainly to a slower rise in home rents and drops in steel and food prices.

On the basis of current data, Sama said there is a general trend pointing to a continued retreat of inflationary pressures in the Saudi economy during the first quarter.

The decline in international food prices, which took place near the middle of 2008, contributed most in the lowering of the inflation rate. The World Bank estimates that food prices dropped 12.1% compared to a year earlier. In spite of the fact that the drop in demand was triggered by the global recession, it is also attributed to a great extent to fears concerning foodstuffs calming down and settling in the housing and leasing sector, fears that pushed up prices in the first half of 2008.

External factors

Experts stress that the continued retreat in inflation, although locally the decline in leasing rates and commodities prices might not be noticed, proves that it was previously forced to those high levels by international factors.

They attribute the retreat in inflation to three main factors, most of which are external; the drop in oil prices - which dropped as a result of the decline in food prices, drop in demand due to the financial turmoil and the expectations of the public.

The new data came after a recently published economic report has projected a drop in inflation in Saudi Arabia to 6.7% this year, compared to 9.9% last year.

The report highlighted the acceleration in the retreat in inflation rates, which started a few months ago. The drop in commodities prices and the rise in the value of the riyal also contributed to the drop in consumer prices.

The report, published by the Economy and Research Department at Jadwa Investments, indicates that inflationary pressures resulting from leases, will witness some retreat, although the shortage in housing units will keep inflation around two digits. Exchange rate movements show that imported inflation has dropped as the riyal has risen 8% against the euro since the end of last year.

See also:
Saudi banks post SR26.3bn profit despite downturn
Saudi Arabia sees no need for loans to cover deficit