Inflation in Saudi Arabia is expected to gain momentum in the second half of 2011 because of high public and consumer spending, among others, Riyadh-based Jadwa Investments said in a report. In addition, in July there is likely to be some upward pressure on food prices, in line with the normal trend in the run-up to Ramadan, it added. "We think these price rises reflect the additional spending stimulated by the bonus awarded to all public-sector and many private-sector workers. Rental inflation also rose, for the first time since last September, though the increase was only slight," it said. Saudi inflation inched up to 4.7 percent in June from 4.6 percent in May, it added. It noted that uptick was due to increases in prices that are largely driven by domestic consumer demand, rather than international factors such as commodity prices. However, Jadwa forecast that the Kingdom's annual inflation will slip to around 4.8 percent through 2011 from 5.3 percent in 2010. It expected inflation to slip to four percent in 2012. The rate stood at 5.1 percent in 2009 and was at 9.9 percent in 2008. The slight rise in year-on-year inflation in June was a result of a small increase in rents and price rises elsewhere that seemed related to higher consumer spending Jadwa said. Saudi Finance Minister Ibrahim Al-Assaf said recently that the country's economy is in an "excellent" shape and a rise in oil prices would boost its strong financial position. Year-on-year inflation for home furniture was at its highest since September 2010, education and entertainment was at a 16-month high and clothing and footwear inflation was positive for the first time since August 2009, it said. "For the first half of the year, inflation averaged about 4.8 percent, hovering around 4.7 percent for each of the last four months…. we think inflation will rise in the next few months. The impact of stronger consumer demand and higher government spending will continue to grow," Jadwa further said. The study showed that monthly inflation stayed at 0.4 percent for the third month in a row in June. Rental inflation was around one percent, its highest level since May 2010. "It is possible that landlords have raised rents in response to the bonus for public-sector workers. As rents are generally paid on an annual or semi-annual basis, this would take some time to be fully reflected in the data," the report said. "The rise in monthly inflation for home furniture (primarily living-room furniture, fitted kitchens, tables and chairs) and education and entertainment (particularly electronic games and video equipment) looks related to higher consumer spending," the report noted. From 2003 until 2010, the average inflation rate in Saudi Arabia was 3.44 percent reaching an historical high of 11.08 percent in July of 2008 and a record low of 0.00 percent in September of 2004. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy. "We expect the inflation rate to average higher than 5.5 per cent this year as global commodity prices remain elevated. Additionally, the expected pickup in credit facilities will drive private consumption," Jadwa said an earlier report. Moreover, rent will act the leading factor to this year's price increases as demand continues to grow albeit at a slower pace due to the 500,000 units to be constructed as one of the latest royal decrees announced over the past few weeks, the previous study added.
