Price growth was unchanged at 0.4 percent on a monthly basis in May, Reuters said. The cost of index in May reached 133.7 points against 133.2 points in April, the Saudi Press Agency said quoting the Central Statistics Department.
Contrary to the expectation that headline inflation would slowly rise — not only due to higher food prices and rents but also due to the rise in money supply and the additional spending measures announced by Custodian of the Two Holy Mosques King Abdullah — prices fell in the month of May, John Sfakianakis, chief economist at Banque Saudi Fransi, said.
“Food inflation fell which is good news for consumers in Saudi Arabia but the fall could be short lived as we enter the Ramadan phase, which seasonally drives food stuffs upward. Rents could climb in the coming months as well,” Sfakianakis said.
He said the additional spending announced by the king, and the public and private sector bonuses should have had an impact by now as money supply, both M2 and M3, has been rising. Base effects could also explain downward pressure on headline inflation, which should dissipate in the second half of the year.
“We could see price pressures building up in the second half of the year but food inflation and rents have to be watched. On the food front, it seems that despite the global rise, food inflation was more subdued than expected,” he said.
“The inflation numbers have declined in recent months, thanks in part to the base effect. However, it now looked likely that the dynamic is beginning to change again due to the weak dollar and high raw material prices. It is entirely possible that this figure will prove a temporary low point for Saudi inflation, even if the subsequent increase may prove fairly gradual,” Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said.
Saudi Arabia’s economy is seen expanding by 4.5 percent in 2011 following a 3.8 percent growth in 2010 and a mere 0.6 percent 2009, helped by recovery in crude prices and generous government spending.
Saudi Arabian Monetary Agency Gov. Muhammad Al-Jasser said last week the Kingdom’s economy could grow around 6 percent this year rather than the 4.3 percent currently estimated thanks to a recently unveiled social spending package.
Analysts expected consumer prices in Saudi Arabia to gather momentum again as the Kingdom recovers from last year’s slowdown, Reuters reported.
Analysts polled by Reuters expected average inflation of 5.6 percent in 2011. Saudi inflation hit 5.1 percent in 2009, after a record high of 9.9 percent in the oil-boom year of 2008, well above its long-term average of around 1 percent.
SAMA, however, expects moderate inflationary pressures in the Gulf oil producer in the second quarter of 2011.
