JEDDAH, 4 January 2007 — Inflation rate in Saudi Arabia is expected to ease in the second half of this year, Kingdom-based economists forecast.
Inflation in the Kingdom more than doubled from 2.2 percent in 2006 to a year-end rate of 4.4 percent in 2007 and even reached 6 percent in some cities last year.
“I expect inflation toward the end of 2008 to subside with the first half of 2008 experiencing rates above 5 percent. But inflation should decrease on a year-on-year basis to no more than 4 percent and therefore leading to a decline in prices,” Dr. John Sfakianakis, chief economist of Saudi British Bank (SABB), told Arab News.
Two of the prime indicators expected to trigger the beginning of a drop would be the relinquishing of bottlenecks in supply which has been doing little to sustain demand in the domestic food and real estate market, as well as the release of some pressures in the global economy coming from the possible strengthening of the US dollar in the latter part of the current year, he added.
In the SABB Economic Report for the fourth quarter, it said although inflation will continue to be an issue in Saudi Arabia and the region in the present year, it is not thought that the inflation dilemma in the Kingdom will match alarming rates such as the 13-14 percent in Qatar and the UAE as seen in 2007, adding that these figures will subside by year-end with inflation in Qatar falling to 10.3 percent and the UAE to 8.3 percent.
Dr. Said Al-Shaikh, chief economist at National Commercial Bank (NCB), agreed, saying that if US economic pressures and the slump in the US dollar were to improve, inflation rate would reflect the beginning of a decline in the Kingdom and the region toward the end of the year.
But with commodities such as gold pushing past its previous record of $850 to $861.10 a troy ounce and oil sprinting past the $100 level on Wednesday, some citizens just can’t believe that relief from the burden of high inflation could be anywhere in sight.
“I don’t think that it would make sense for the Kingdom and other GCC countries to start mega-projects like the Saudi economic cities, and strike up foreign investment deals with the US, Europe and Asia if they knew that they couldn’t pay for these projects down the road,” said Adel bin Mafouz.
He said that high oil prices must remain so in order to provide enough money for the region to finalize projects that are already under way. However, he added that as long as oil remains high and the region continues making substantial oil revenues, high consumer prices would continue.
Others viewed that the only way to keep the wheels of growth in motion throughout the region is to get “comfortable” with higher consumer prices, saying that GCC governments should do more by raising salaries to compensate for the increase in the cost-of-living.
Previous reports said that the UAE has already raised the salaries by 70 percent and Kuwait intends to follow suit by raising the salaries of citizens by 30 percent.
In Saudi Arabia, Custodian of the Two Holy Mosques King Abdullah raised the salaries of government employees by 15 percent in August 2005, with reports of another 30 percent increase on the horizon.
Saudi Aramco had already raised their employee’s salaries by as much 15-40 percent, with others expected to conform.