RIYADH, 23 October 2007 — A committee of Saudi Arabia’s advisory Shoura Council has recommended a national wage increase to cushion employees from inflation, which hit a seven-year high in August, two council members said yesterday.
The committee was set up last month to fashion a response to rising prices. The government of the world’s largest oil exporter is not obliged to accept the council’s policy recommendations.
Although not binding, the committee’s recommendations are a sign of growing pressure on the authorities and the central bank, which is torn between containing inflation and preventing an appreciation of the dollar-pegged riyal currency.
Custodian of the Two Holy Mosques King Abdullah summoned the interior minister and provincial governors to explain inflation after it hit 4.4 percent in August. The 120-member Shoura Council, appointed by the king, also called for action to contain prices last month. The committee did not say how much wages should rise, the council sources said.
“The committee phrased the recommendations carefully: We wanted to make clear that wages for both private and public sectors ought to be raised,” one council member, who did not want to be identified, told Reuters.
A second councilor confirmed the information, saying the Shoura had held a closed-door session to discuss the committee’s recommendations, which included lowering utility tariffs and improving access to housing for people on lower incomes.
“Several members of the council opposed the recommendations of the committee,” the second councilor said. The committee’s opponents argued that a 15 percent public-sector wage increase in 2005 was partly responsible for driving up inflation, he said. Many private sector employers in the Kingdom of 24 million people did not match that increase.
Ihsan Bu-Hulaiga, who heads the Shoura Council’s finance committee, declined to comment to Reuters on Sunday.
With oil hitting a record highs at more than $90 a barrel last week, demands for wage increases are becoming more difficult to refuse.
“The government can justify it now for one simple reason — it has a much bigger surplus and has the power to spend more money,” said John Sfakianakis, chief economist at HSBC affiliate SABB Bank, who expects an increase of 10 percent to 15 percent.
“The likelihood of a public sector wage increase is greater now than before,” he said. Inflation in August was driven mainly by a record 12.1 percent jump in rents and a 6.6 percent rise in prices of food products.
The chamber of commerce in Jeddah, the country’s commercial center, said in a statement this month inflation was caused by external factors including the decline of the US dollar, which hit record lows against the euro on Monday.
The Saudi Arabian Monetary Agency (SAMA) has repeatedly ruled out any change in currency policy, which forces it to shadow US interest rate moves to maintain the relative appeal of the riyal and hampers the fight against inflation.
