Saudi inflation hits 10.5 percent on rents, food

Annual inflation in Saudi Arabia accelerated to at least a 27-year high of 10.5 percent in April from 9.6 percent the previous month, fuelled by rents and food prices in the world's largest oil exporter. The cost of living index for the largest Arab economy was 115.2 points on April 30 compared with 104.3 points a year earlier, government data showed on Saturday.
The rental index - which includes rents, fuel and water - surged 16.9 percent, with rents soaring 20.4 percent, while food and beverages cost surged 16 percent, according to the data.
Like most of its neighbours in the world's biggest oil-exporting region, Saudi Arabia pegs its riyal currency to the dollar, which has fallen to record lows against the euro and a basket of major currencies this year.
Domestic factors, such as rents, play a role in stoking inflation, but the main driver is the currency situation, said Mary Nicola, Middle East economist for Standard Chartered bank in Dubai. "Now that food prices are rising globally and Saudi is a net importer of food, that's having a negative impact on it," Nicola said.
Last year, Saudi Arabia imported 960,000 tonnes of rice, making it the world's sixth-biggest rice importer, according to US Department of Agriculture data. Price rises are plaguing the Gulf Arab region, where economies are surging on a near sixfold increase in oil prices during the last six years.
Dollar pegs force the Gulf states, except Kuwait, to track the United States in cutting interest rates. With the dollar tumbling this year to record lows, some imports have become more expensive.
"We expected inflation to increase largely because of the weakening dollar and the growth in money supply; the dollar is weakening and there is no monetary tools to mitigate the effects of inflation," Nicola said. "The increase in rents could be largely attributed to the growth in money supply," she added.
Annual money supply in the kingdom has been accelerating until it reached at least a 14-year high in February, a trend that has prompted the central bank to raise bank reserve requirements three times since November to 12 percent from 7 percent. Money-supply growth, however, eased to 23.04 percent in March.