Inflationary pressures ‘relatively subdued’

The Kingdom's cost of living index increased by 3.4 percent in November compared to the same period last year, its slowest increase in more than five years, according to official figures.
The cost of living index for November recorded 124.4 points compared to 124.1 for the month of October, an increase of 0.2 percent taken 2007 as the base year, said the report from the Central Department of Statistics and Information (CDSI).
The rise in the cost of living index was attributed to price increases in eight major sectors during the month. They included restaurants and hotels (1 percent), food and beverages (0.4 percent), garments and shoes (0.2 percent), housing, water, electricity, gas, other fuels, recreation and culture (0.2 percent) and home furnishings, equipment, maintenance, and transport (0.1 percent).
One out of eight sectors constituting the cost of living index registered a decline in November, the report stated. It said the health sector fell by 0.1 percent and prices of tobacco, telecommunications and education remained unchanged.
"Right now we seem to be looking at a situation where inflationary pressures are relatively subdued," said Jarmo T. Kotilaine, a regional-based analyst, commenting on the latest data.
"Most of the major culprits of the past are not present in the same sort of way and hence the base effect alone has contributed to somewhat lower headline rates," he said.
He says the global picture is less inflationary than before, which has contributed to less imported inflation.
"The euro zone concerns have countered some of the effects of unconventional monetary easing. Emerging market growth has been somewhat lower, which has meant less demand of key raw materials," said Kotilaine.
"Although Chinese growth is now showing signs of picking up again, the driver is not loose monetary policy to the same extent as last time. The euro zone worries have kept the dollar stronger in relative terms, although the fiscal cliff remains a risk factor going forward," he added.
"Domestic growth is very strong but not accelerating as last year, which means less pressure on prices," Kotilaine said.
The report also said that prices of a series of commodities and services registered an increase in November 2011. They include tobacco (11.7 percent), hotels and restaurants (6.3 percent), garments and shoes (5.8 percent), food and beverages (4.5 percent), housing, water, electricity, gas and other fuels (2.3 percent), health (1.9 percent), education (1.7 percent), commodities and services (1.4 percent), recreation and culture (1.2 percent), and house furnishings and maintenance (0.8 percent).
Hasan Al-Fathi, a private security guard at an Eastern Province business establishment, commented that the latest data clearly indicated that the cost of living has gone up considerably,
"It is becoming increasingly difficult for middle income people like us to manage our day to day expenditures," Al-Fathi told Arab News.
"While the prices of essential commodities and services have all gone up, the salaries have not increased proportionately," he said.
Al-Fathi added: "The power tariff has doubled in the last few months," he said. "We are in winter now but during summers a substantial chunk of our salary would go toward paying the electricity bill ... All these have made things very expensive."
Munaf Khan, an expatriate who has been employed in the Kingdom for the last 20 years, said: "I am feeling the pinch of the rising cost of living. If you compare the current prices with the rates 20 years ago, you will notice that there is a huge difference. House rents, for example, have skyrocketed, and food prices have shot up phenomenally."
Khan claimed that there were no inflationary pressures when he first arrived in the Kingdom.
"Not only my salary was decent enough but it also helped me to save substantially at the end of the month. Now that is not possible because everything has become expensive," he told Arab News.
"And the salary has not increased to offset the impact of inflation," he lamented.
The Riyadh-based Jadwa Investment said in its recent report that year-on-year inflation in the Kingdom slightly increased in October, though this hid some sharp movements, with rental and educational inflation easing and food and home furniture inflation rising. However, it said inflation in Saudi Arabia was the highest compared to other GCC countries.
Samba Financial Group said in its December Economic Monitor inflationary pressures should remain stable in Saudi Arabia. A generally weak global economy will contain the cost of imports, though much will depend on the direction of the dollar. Domestically, the addition of housing will be a slow and steady effort, but should help to dampen rental inflation. Therefore, according to Samba, average inflation is edging down to around 4 percent by 2014.
Al-Rajhi Capital said Saudi inflation has been declining from 5.4 percent in February this year and bottomed at 3.6 percent in September.
It turned around in October to 3.8 percent. The average monthly inflation for the first ten months of 2012 was 4.7 percent.
Therefore, Al-Rajhi Capital expects inflation averaging 4.7 percent for 2012.
The easing in inflation index has been broadbased as most components of the index have moderated over the year. The most notable decline happened in "other expenses and services," which was rising close to double digit in early months of the current year. The component index actually declined in September (-0.4 percent). The other large component — rent, renovation, fuel and water — also eased from above 9 percent to around 7 percent during the course of the current year.
Al-Rajhi Capital said that inflation would moderate further to around 4.2 percent in 2013, mainly on account of moderating rent inflation and modest food inflation.
The National Commercial Bank (NCB) said earlier Saudi inflation rate is likely to remain below the 4 percent level toward the end of 2012.
However, it expects domestic prices to regain pace by January given the robust growth of the economy and its highly liquid state.