The Central Department for Statistic and Information (CDSI) released Consumer Price Index (CPI) inflation data for April, showing prices slightly rising to 4 percent year-on-year compared with 3.9 percent in the previous three months. This level of inflation remains among the highest inflation rates relative to the Kingdom's main trading partners.
On a monthly basis, prices slightly eased to 0.2 percent in April compared with 0.3 percent in March. According to Jadwa Investment, estimate of Saudi core inflation, which excludes food and housing-related services, also eased to 3.4 percent year-on-year in April compared with 3.5 percent in March. Core inflation was mainly driven by the transport group (5.6 percent year-on-year) followed by restaurant and hotel (5.5 percent year-on-year).
A major highlight of April inflation print is the food prices acceleration to 6.2 percent year-on-year compared with 5.3 percent in March. This puts April's food inflation at a record high for the new CPI classification of which data is only available for 2012-13. Such significant increase in annual food prices also put the food segment as the largest single contributor to overall inflation, adding 1.5pp. According to the CDSI's statement, all but one subcomponent of food inflation increased last month compared with a year earlier.
While the unavailability of weights for food subcomponents prevents us for pinning down the main cause of such spike in food prices, Jadwa notes that bread and cereals products, vegetables and fruit and nuts registered the largest increase in prices compared to the previous month. The food price increases are inline with the trend of the IMF's food price index, which increased by a monthly average of 6 percent year-on-year so far this year. The FAO food price index also reversed its negative trend to rise by 1.1 percent in April year-on- year.
The rent and housing-related services price index eased to 3 percent year-on-year in April versus 3.1 percent in March, contributing 0.7pp to headline inflation. Such slight ease in the rate of inflation for the housing segment is most likely due to slower rental inflation which registered 3.4 percent year-on-year in April compared with 3.7 percent the previous month. In fact, rental prices have contracted by 0.1 percent in April compared to their March level. Despite the monthly contraction, we maintain over view that housing inflation is expected to remain elevated this year before gradually easing next year as the impact of the recent government housing initiatives kicks in.
“While the contribution of external factors to inflation in the Kingdom will remain subdued owing to a stronger US dollar and low trading partner inflation rates, we expect domestic inflationary pressure to remain relatively strong,” Jadwa said in its report.
High consumer spending, double-digit money supply growth, rising bank lending and exceptionally low interest rates will maintain positive inflation in areas such as home furniture, education, recreation and culture, transport, communication and medical care. These components, however, have low weights in the CPI basket leading to a lower contribution to overall inflation print.
Looking forward, the Jadwa report said rate of inflation is likely to slow during the early summer months before rising ahead of the month of Ramadan and into the Eid holidays.
Food prices continue to rise in Kingdom
