Food inflation at 4-year high in Kingdom
Food inflation at 4-year high in Kingdom
According to Jadwa Investment, estimate of Saudi core inflation, which excludes food and rental and housing-related services, maintained its downward trend for the fifth consecutive month. It fell to 2 percent year-on-year in July compared with 2.25 percent in June.
Core inflation was pushed down by falling prices of the other good and services group. The prices of the latter contracted by 0.2 percent year-on-year (-0.7 percent month-on-month) in July owing mainly to jewelry prices, which contracted by 12.5 percent year-on-year in July. Jewelry prices are driven by the price of gold. Most other components of the core index were either stable or down slightly in July.
With core inflation falling, the Jadwa report said contribution of food and rent and housing-related services groups to the overall inflation increased to 73 percent compared with 66 percent in the previous month.
As expected, food inflation accelerated to 6.9 percent year-on-year in July compared with 6.1 percent in June putting the food inflation at its highest level since December 2008. It is normal for food prices to rise during Ramadan. On monthly terms, food prices rose by 1 percent in July compared to an average of 0.4 percent for the first six months of the year.
This was exacerbated by a rise in prices of vegetables, fish and seafood and bread and cereals which saw prices increasing by 9.3 percent, 1.6 percent and 0.7 percent, respectively.
In contrast, international food prices fell in July with the IMF measure falling by 0.6 percent year-on-year and the FAO index by 3.3 percent in July. According to the World Bank, falling international food prices reflected higher production and stocks and lower demand. Lower international food prices does not necessarily translate into a significant decline in food prices inside the Kingdom, as for issues with domestic supply networks, falls in global food prices tend not get entirely passed on to domestic consumers.
The rent and housing-related services inflation also accelerated to 4.2 percent year-on-year in July compared with 3.6 percent year-on-year the previous month. Most of the increase was due to rising rental inflation, which climbed back over 0.7 percent month-on-month. While this increase in rental inflation partly reflect a seasonal trend during summer months, Jadwa maintains its view that higher consumer incomes are putting upward pressure on rents at a time when the bulk of anticipated new supply has still to balance the market.
While the external factors practically international food prices contribution to inflation in the Kingdom will remain subdued owing to low trading partner inflation rates, Jadwa expects domestic inflationary pressure to remain relatively strong. High consumer spending, exceptionally low interest rates, rising demand deposits and rising bank lending will keep inflation at the current annualized level. Latest monetary data show consumer lending expanding by 18.5 percent year-on-year in the first quarter this year, the highest level on record.
Oil prices rise as China, US put trade war ‘on hold’
SINGAPORE: Oil prices rose on Monday as markets reacted to news that China and the US have put a looming trade war between the world’s two biggest economies “on hold.”
Brent crude futures were at $79.06 per barrel at 0650 GMT, up 55 cents, or 0.7 percent, from their last close. Brent broke through $80 for the first time since November 2014 last week.
US West Texas Intermediate (WTI) crude futures were at $71.71 a barrel, up 43 cents, or 0.6 percent, from their last settlement.
The US trade war with China is “on hold” after the world’s largest economies agreed to drop their tariff threats while they work on a wider trade agreement, US Treasury Secretary Steven Mnuchin said on Sunday, giving global markets a lift in early trading on Monday.
“The temporary trade dispute will de-escalate over time through negotiation,” US bank Morgan Stanley said.
“Both sides plan to work on implementing agriculture and energy purchases and to continue to negotiate on manufacturing and service trade, bilateral investment and intellectual property protection in coming months,” it added.
Still, crude prices were some way off the November 2014 highs reached last week as many traders and analysts say there is enough supply to meet demand despite ongoing production cuts led by the Organization of the Petroleum Exporting Countries (OPEC), plunging output in crisis-struck Venezuela and looming US sanctions against major oil producer Iran.
“Without a further escalation in geopolitical risk, oil might be due a pullback,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
BP’s Chief Executive Bob Dudley told Reuters he expected a flood of US shale and a possible reopening of OPEC taps to cool oil markets after crude rose above $80 a barrel last week.
Dudley said he saw oil prices falling to between $50 and $65 a barrel due to surging shale output and OPEC’s capacity to boost production to replace potential falls in Iranian supplies due to sanctions.
The US oil rig count, an early indicator of future output, was at 844, according to energy services firm Baker Hughes. That was the same count as the week before, which marked the highest level since March 2015.