Saudi inflation likely to reach 2.6% in 2015

The Central Department of Statistics and Information (CDSI) has released Consumer Price Index data for December, showing a deceleration in prices to 2.4 percent year-on-year compared to 2.5 percent in November. This puts the annual inflation for last year at an average of 2.7 percent.
“For 2015 we expect inflation to be mainly subdued, but still driven by rent and housing related services as well as food prices. Whilst the latter is expected to be less of a concern as international food prices continue to decline, housing inflation is to be the main source for upward pressure given the continued shortage in housing supply. As such, we expect average annual inflation in 2015 to reach 2.6 percent,” the Riyadh-based Jadwa Investment said in its new report.
 Taking the average for 2014, most components of the headline index recorded a slowdown compared to 2013. Foodstuffs slowed to an average of 3.3 percent, compared to 5.8 percent in 2013. Housing inflation slowed slightly from 3.5 percent in 2013 to 3.4 percent last year.
“Our estimate of core inflation, which excludes food and rent and other housing services, also slowed to 2.1 percent in 2014, down from 2.5 percent in 2013,” the report said.
 Five of the components in the core index recorded annual increases during 2014, while the other five recorded a slowdown. Recreation and culture recorded the highest acceleration at 7.2 percent, up from 1.8 percent in 2013. Education, health, and furnishings also recorded slight increases. Transport, the largest component of the core index, recorded an annual contraction in prices of 0.5 percent, compared to positive inflation of 2.5 percent in 2013. Communication was the only other component to record a decline in prices between 2013 and 2014.
 Data for December shows that inflation for both foodstuffs and housing continued to slow, year-on-year, for the third consecutive month to reach 2.6 percent, and 2.5 percent respectively. The contribution from foodstuffs to overall inflation fell to 26 percent in December, equaling the contribution from housing inflation. Core inflation accelerated slightly to 2.2 percent year-on-year compared to 2.1 percent in November.
 The slight fall in housing inflation came on the back of a slowdown in the rent segment. Rental inflation, which plays a major part in the housing inflation component, slowed to 3.2 percent year-on-year in December, down from 3.4 percent recorded in the previous month.
“We expect that the rental segment will remain the main source for inflationary pressure at least until government-led housing initiatives contribute to increased supply of affordable housing units, which should meet the strong demand for homes around the Kingdom,” the Jadwa report said.