The cost of living index in June reached 134.2 points against 133.7 in May, registering a 0.4 percent rise.

The higher index in June is attributed to the rise in the prices of four major components — maintenance, rental, fuel and water by 1 percent, food and drinks 0.5 percent, household furniture 0.3 percent and education and entertainment 0.1 percent.

On the other hand, cost of clothes, shoes, medical care, transportation and telecommunication and other commodities and services remained unchanged.

Commenting on the report, John Sfakianakis, chief economist at Banque Saudi Fransi, said: "Inflationary pressures are very gradually creeping up in the Gulf but overall the increases we are witnessing are benign and measured. In Saudi Arabia the increase in the month of June is very small on a year-on-year basis and still moderate on a month-on-month basis, although we'll see headline inflation increasing in Saudi Arabia due to higher food prices as the holy month of Ramadan is nearing."

He said the inflationary impact from Custodian of the Two Holy Mosques King Abdullah's extra spending program has had a limited pass through effect. Average inflation for the year is still less than last year's 5.3 percent.

Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: "The latest numbers point to a slight intensification of inflationary pressures in the region, marking a reversal of some of the moderation seen of late. The sources of price pressures remain the usual combination of housing and food. Little immediate relief is likely in either area, although the loss of market momentum due to the expiry of QE2 and some better news on corn sowing, etc. is containing the upward pressures somewhat."

However, Kotilaine said the boost to disposable incomes from additional bonuses, as well as the government's ambitious spending plans will act as countervailing forces. Although massive funding has been allocated to housing, this will translate into new supply only gradually, over a number of years, he said. Rental pressures look likely to persist even though the effects of the new labor market measure may reduce the market pressure in some areas, he added, claiming in general, the inflation outlook is becoming fairly mixed.