Kingdom's inflation rate surges to 4.6%
Published: Mar 11, 2010 00:26 Updated: Mar 11, 2010 00:26
JEDDAH: Saudi Arabia's annual inflation rate surged to 4.6 percent in February, its highest level since June and up from 4.1 percent in January, official data showed on Wednesday.
The cost of living index rose by 4.6 percent in February as a result of a rise in prices in six major categories, the General Statistics Department at the Ministry of Economy and Planning said.
It said the prices of rent, fuel and water rose by 10.6 percent; services 5.8 percent; food and beverages 4.0 percent; house furniture 3.0 percent; education and recreation 1.1 percent and health care 0.1 percent.
The department also noted that prices of clothing, textiles and shoes went down by 0.3 percent and transport and communications 0.2 percent.
The quarterly inflation rate in the Saudi economy continued its upward trend over the last two quarters of 2009. The quarterly inflation rate went up from 0.5 percent in the second quarter of 2009 to 1.2 percent in the third quarter of 2009, and then to 1.5 percent in the fourth quarter of 2009, the Saudi Arabian Monetary Agency (SAMA) said in its fourth quarter 2009 inflation report.
The main driver for inflation in February was principally food and not so much rents. Rents did increase on a month-on-month basis but food prices rose more between January and February. Rents have been coming down on a year-on-year basis, however, just as predicted by SAMA, said John Sfakianakis, group general manager and chief economist at Banque Saudi Fransi.
He said food prices globally have been rising and as a result food inflation in Saudi Arabia has witnessed a rise. This is an expected trend as Saudi Arabia imports around 65-70 percent of its food needs. Inflation would be volatile, especially on food as prices globally continue to fluctuate. Food comprises 26 percent of the inflation basket compared to rents (18 percent), resulting in inflationary pressures when food prices move up or down.
"Overall inflation in Saudi Arabia should be lower in 2010 than 2009 at an average rate of 4.3 percent," Sfakianakis added.
The Saudi economy is an open-market based economy, which is reflected by data of foreign trade with trading partners of the Kingdom. Therefore, the change in the prices of imported goods is an important factor affecting the level of domestic inflation, the SAMA report said.
A high degree of economic openness of a country causes the domestic inflation rate to be affected by change in the prices of goods in the country of origin.
The United States is the largest trading partner of the Kingdom though there was a decline in the relative share of imports from the US during 2008 to 13.7 percent from 19.3 percent in 2000. Imports from the US amounted to SR59.1 billion during 2008 against SR21.8 billion in 2000, rising by 171.1 percent. Figures indicate that the rate of inflation in the US increased to 3.8 percent during 2008 compared to 3.4 percent in 2000.
The Kingdom's imports from some euro zone countries went up from Germany by 249.7 percent to SR32.0 billion compared to 2000, from Italy by 268.0 percent to SR17.3 billion, from France by 226.1 percent to SR15.2 billion, and from other countries by 345.2 percent to SR138.6 billion.
According to SAMA there was an increase in the inflation rate in China from 0.4 percent in 2000 to 5.9 percent in 2008, and a rise in the relative share of its exports to the Kingdom from 4.0 percent in 2000 to 11.0 percent, amounting to SR47.5 billion in 2008. It is also noticed that India's relative share of exports to the Kingdom rose from 2.8 percent in 2000 to 4.2 percent or SR18.0 billion in 2008. The inflation rate in India rose from 4.0 percent in 2000 to 8.3 percent in 2008. With the increase in the volume of imports to the Kingdom over the years under study, the percentage share of imports from emerging economies, such as China, South Korea, India and others increased as well; these countries were characterized by higher inflationary pressures, especially during the last three years.
Projections indicate that inflationary pressures will continue in the Kingdom during the first quarter of 2010, but at a lower level than that of the fourth quarter of 2009. Most inflationary pressures in the Kingdom come from the group of renovation, rent and fuel which went up during the preceding four quarters (first quarter of 2009 up to the fourth quarter of 2009) by an average of 2.8 percent.
As for the group of food and beverages, it is expected to stabilize domestically during the first quarter of 2010, except for sugar, which has been increasing since 2007.
The average inflation rate as measured by annual changes in the cost of living indices during the year ending by December 2009 rose by 5.1 percent while the average inflation rate during the preceding five years (January 2004 - December 2008) was 3.4 percent. During 2009, most inflation rates by major groups exceeded their average levels recorded in the preceding five years. Five main groups, representing 59 percent of the size of the cost of living basket, recorded rises in their averages exceeding the levels recorded during the preceding five years.
The group of renovation, rent, fuel and water (housing and appurtenances) rose by 14.2 percent, the group of home furniture 8.4 percent, the group of education and entertainment 1.3 percent, the group of transport and telecommunications 1.0 percent, the group of fabrics, apparel and shoes 0.5 percent, while the remaining three groups (which constitute 41 percent of the basket) recorded inflation rates lower than the average levels they registered during the past five years. The group of food and beverages rose by 2.0 percent, the group of goods and other services 4.3 percent, and the group of medical care 0.7 percent, the SAMA report said.
