JEDDAH: Rising food and housing costs sent Saudi Arabia’s inflation rate to a 30-year high in July.

The annual inflation rate surged to 11.1 percent in the Kingdom compared to 10.6 percent in June, 10.4 percent in May and 10.5 percent in April.

The Central Department of Statistics said the cost of living index hit 117.3 points on July 31, compared with 105.6 points a year earlier. Food and beverage costs advanced 16 percent in July compared with an increase of 15.8 percent in June while the rental index jumped 19.8 percent against 18.7 percent in June.

“Inflation continues to rise and the latest data indicate a faster rise than the previous three months. The inflationary trend is on a steadily rising path rather than a declining one suggesting that the summer season will not have much of a dampening effect on inflation,” John Sfakianakis, chief economist at SABB, said.

Historically Saudi Arabia has managed inflation better than many other economies in the world. It managed 1 percent to 2 percent inflation for nearly 15 to 20 years.

Ilyas Khan, a Pakistani national and resident of Saudi Arabia for nearly 20 years, said, “I never heard of inflation for many years as things were very cheap here, including food and rent. But suddenly for the last two years everybody is talking about inflation. I am really feeling the pinch now as I am with my family here.”

The Saudi Arabian Monetary Agency (SAMA) said last week that inflation would continue to rise in the third quarter, but at a slower pace. The rise of inflation in the third quarter will be slower mainly because of measures the Saudi government has taken to subsidize some staples and also to increasing supplies.

SAMA also said Saudi Arabia’s annual growth in money supply, an indicator of future inflation, eased to 20.85 percent in July from 21.34 percent in June.

M3, the broadest measure of money circulating in the Kingdom, increased to SR877.05 billion at the end of July compared with SR725.71 billion a year earlier. According to SAMA’s report for the second quarter, M3 rose by 3.2 percent or SR26.7 billion to SR860.7 billion during the second quarter of this year compared to an increase of 5.6 percent or SR44.3 billion during the preceding quarter. It registered an annual growth rate of 21.3 percent or SR151.4 billion.

Sfakianakis said, “There is a disconnect between money supply and inflation indicating that monetary pressures play a role but it’s not the predominant one. Non-monetary factors such as government spending, and real demand and scarcity of certain goods and services seem to be at the forefront of determining inflationary pressures rather than simply money supply growth. Based on the underlying data, inflation in the fourth quarter might not rise as steeply but significant moderation will not be attainable this year.”

Commenting on the latest inflation figures, Brad Bourland, chief economist at Jadwa Investment, said, “I expect to see some relief on the high inflation rate in November and December when the rate should decline below double digits.” However, some analysts expect Saudi inflation to hit its peak toward the end of the third quarter that coincides with the end of Ramadan, the fasting month that began yesterday.

Samba Financial Group said in its latest report that Saudi Arabia’s inflation is likely to average 11-12 percent this year and is expected to ease to around 10 percent in 2009.

— With input from agencies