DUBAI, 15 November 2007 — Saudi Arabia’s central bank chief said domestic housing, and global food and commodity prices were fueling Saudi inflation rather than the dollar’s decline, the Financial Times reported yesterday.

“The high global food prices, commodity prices and domestic housing costs; these are the major sources of inflation,” the FT quoted Saudi Arabian Monetary Agency (SAMA) Gov. Hamad Al-Sayari as saying. “The weakness of the dollar has a role but it’s not the main cause,” he said.

Inflation in Saudi Arabia rose to 4.89 percent in September, its highest in at least a decade. Annual rent costs jumped 11 percent and food 7.2 percent, according to government data released last week. Saudi Arabia and four of its Gulf Arab neighbors peg their currencies to the US dollar, which has fallen this month to all-time lows against the euro and a basket of six currencies. Oil is priced in dollars.

“A stronger currency gives some protection against imported inflation but changes in exchange rates don’t get passed through to local markets in a simple manner,” Sayari said, according to the FT. Inflation in Saudi Arabia is a “source of worry,” he said.

Saudi Arabia’s peg to the dollar means its freedom to fight inflation is limited by its need to track US interest rates to support its exchange rate policy. Kuwait is alone among Gulf oil producers to have dropped its peg to the dollar saying the currency’s slide was fueling inflation by making some imports more expensive.

Last month, Custodian of the Two Holy Mosques King Abdullah summoned officials to explain rising prices. A committee of his advisers also called for a national wage hike. Sayari also said Saudi Arabia could use a public investment fund to buy foreign assets but has no immediate plans to set up a sovereign wealth fund.

SAMA manages the Kingdom’s foreign assets, which were worth $258 billion at the end of September.