Saudi inflation jumped to 7 percent in January, its highest in at least 16 years, as rents and food costs spurred price rises in the worrisome import costs. Rents in the kingdom jumped 16.7 percent year on year in January while food and beverage costs rose 7.9 percent, data provided by the Central Department of Statistics showed on Saturday.
"It is becoming obvious that the rental component is having a greater upward impact on inflation than any other item," said John Sfakianakis, chief economist at SABB bank, HSBC''s Saudi affiliate.
"Demand continues to outpace supply and in an environment where prices are rising, rents do not seem ready to subside," he said. The cost of living index was 111.7 points on January 31 compared with 104.4 points a year earlier. Prices in January rose 1.36 percent from December, the fastest month-on-month increase in at least nine years.
Annual inflation hit 6.5 percent in December. The Saudi government has tried to offset the impact of rising prices on its 25 million people through measures including public sector cost of living allowances, welfare payments and subsidies.
But like most of its neighbours in the world''s biggest oil-exporting region, Saudi Arabia''s dollar peg forces it track American monetary policy at a time when the Federal Reserve is cutting interest rates to ward of recession.
Saudi Arabia last year imported almost 25 percent of its goods from Europe and 8.4 percent from Japan, while another 13.4 percent came from the United States, according to central bank data.
As inflation overtakes official borrowing costs in Saudi Arabia, the central bank has struggled to match five Fed rate cuts since September 18 which have taken the US benchmark rate down 225 basis points to 3 percent.
Saudi Arabia has reduced only its reverse repurchase rate, which guides bank deposit rates, in response to the cuts while leaving its benchmark repurchase rate, the lending rate, steady at 5.5 percent. The central bank also raised reserve requirements twice in two months to force lenders to keep more money in their vaults in a bid to slow down credit growth, another trigger of inflation.