RIYADH: Annual inflation in Saudi Arabia fell to 5.2 percent in June from 5.5 percent in May after the rate of increase for rent and food prices eased, official data showed on Sunday.
Saudi Arabia’s cost of living index was 121.5 points in June, up from 115.5 points a year earlier, state news agency SPA said. The index rose 0.2 percent from May 2009, it added.
The annual rise in rental index — which includes rents, fuel and water — eased to 15 percent in June down from 17.7 percent in May, SPA said. For food and beverages it was 1.7 percent, down from 2.4 percent in May.
“Inflationary pressures look even more subdued than the headline figure suggests. Most of the annual gain came in the second half of last year — over the first six months of 2009 prices are up by just 1 percent,” said Simon Williams, economist at HSBC in Dubai.
Inflation in May was 5.5 percent, and 5.2 percent in April.
Before May, inflation rates had been declining rapidly in the largest Arab economy as commodity prices slumped and a stronger US dollar helped reduce import costs for the Kingdom, which pegs its riyal to the dollar.
Analysts expect the start of the fasting month of Ramadan around Aug. 21 to cause a spike in food prices, but retailers are not convinced.
In remarks published on Sunday by a local newspaper, Abdullah Al-Othaim, chairman of supermarket chain Abdullah Al-Othaim Markets Co., said food prices would fall by at least 10 percent on average during Ramadan, compared with a year earlier.
John Sfakianakis, a Riyadh-based economist, said inflation was subsiding, but not aggressively, as it still remained above historical levels of about 1 percent.
“Inflation will fall again in July but could plateau sooner,” Sfakianakis added.
Saudi Arabia said last year it would invest around $400 billion in the next five years, mainly to enhance infrastructure in the country of around 25 million people.
These projects mean that Saudi Arabia continued to see high housing demand, with an increase in imported labor adding to pressures generated from rapid demographic growth among the native population of over 17 million.
Meanwhile, Saudi Arabian import demand, as measured by banks’ financing of private sector imports, fell 34.7 percent in the first half of 2009, with building material and motor vehicles bearing the brunt of the drop, official data showed.
New letters of credit opened by commercial banks for private firms’ imports stood at SR61.19 billion ($16.32 billion) in the six months to June 30, down from SR93.68 billion a year earlier, according to central bank (Saudi Arabian Monetary Agency) data published this week.
The data indicates the magnitude of the slowdown that has been affecting private sector activity in Saudi Arabia because of the global crisis.
There was, however, a noticeable improvement in June. At SR12.69 billion, new letters of credit last month recorded their highest level since September, according to the data. Banks loans to the private sector also recorded their first increase in June since September.
Prior to June, new letters of credit in the five months to end-May were down 54.4 percent from a year earlier.
But the contrast with last year remains significant. New letters of credit issued in 2008 rose almost 30 percent from 2007.
The data showed that new letters of credit for motor vehicle imports stood at SR8.56 billion during the first half of this year down from SR10.06 billion a year earlier.
New letters of credit for building material imports recorded a near-50 percent annual drop during the first half, standing at SR6.12 billion.
