DUBAI, 25 December 2007 — Inflation in three Saudi Arabian cities, including the capital Riyadh, rose to more than 5 percent in the third quarter, accelerating at a faster pace than the country average, the central bank said yesterday.
Price rises in Riyadh grew 5.9 percent in the three months ended Sept. 30, while inflation hit 5.2 percent in Najran and 6.1 percent in Hail, the fastest pace in the oil producer’s 16 cities, the Saudi Arabian Monetary Agency said on its website.
Inflation averaged of 4.4 percent in the largest Arab economy in the third quarter, the central bank said.
The dollar’s weakness this year helped drive up food and beverage costs 6.5 percent in the third quarter, while rents jumped 9.5 percent in the period, the data showed. Saudi Arabia pegs its riyal currency to the dollar.
“The change in the prices of imported goods is an important factor affecting the level of domestic inflation,” the central bank said.
Some 14.5 percent of Saudi Arabia’s imports in 2006 came from the United States, while 23.7 percent came from Europe in 2006, 9.5 percent from Japan and 8.1 percent from Germany, it said.
Custodian of the Two Holy Mosques King Abdullah has ordered subsidies on imported rice and baby milk to cushion consumers from rising inflation, according to a decree published this month.
Inflation in Saudi Arabia hit 5.35 percent in October, its highest since at least 1995. Average inflation in the country could rise to 4.1 percent in 2008 from 3.8 percent this year, a Reuters poll showed this month.
However, inflation in the United Arab Emirates will fall from a 19-year high to an average 5 percent in the next five years as housing supply constraints ease, the Dubai Chamber of Commerce and Industry said.
Inflation would slow to 3.4 percent in 2012 as “government fiscal expenditure restraint and the easing of housing shortage” take pressure off price rises, the chamber said in a report on Sunday, citing International Monetary Fund forecasts.
Prices in the second-largest Arab economy rose 9.3 percent in 2006, the fastest pace since at least 1988.
UAE inflation will accelerate to 10.1 percent this year before easing to 8.9 percent in 2008, a Reuters poll of 12 economists showed this month.
“The danger of such high inflation is the risk of undermining the competitiveness of the economy and therefore jeopardizing the long-term growth prospects of the economy,” the chamber said.
Reducing inflation and addressing exchange rate policy are among the main issues facing policymakers in the country, it said without elaborating.
Like most Gulf Arab oil producers, the UAE pegs its dirham currency to the dollar, forcing it to follow US monetary policy at a time when the Federal Reserve is cutting rates to contain the fallout of a mortgage crisis.
UAE Central Bank Governor Sultan Nasser Al-Suweidi said last month he was under mounting social and economic pressure to sever the dirham’s dollar peg and track a currency basket, including the euro.
He backtracked on those remarks this month after Gulf rulers agreed at a summit in Qatar to retain dollar pegs and keep any talks on currency reform secret.
Inflation in the UAE is temporary and mostly caused by domestic factors rather than the dirham’s peg to the weak dollar, Al-Suweidi said in a television interview this month.
Only about 3 percentage points of inflation are a result of currency policy and rising rents were the main driver of price rises, he said.