Inflation in Saudi Arabia could cross 10 percent this year, which would be the highest since at least the 1970s when Gulf economies boomed on soaring oil prices, Saudi Arabian Monetary Agency (SAMA) Governor Hamad Saud Al-Sayyari told reporters here Tuesday evening. “If inflation continues to grow at the same pace of the previous months, then it will rise to and can exceed 10 percent,” he said. “But as a result of both expectations of a decline in global demand for commodities because of the US economic slowdown and the effectiveness of the government measures, it might decrease in the second half, but these remain forecasts,” he said. Inflation in the Kingdom hit at least a 27-year high of 8.7 percent in February, almost double the level of six months earlier, as rents surged 18 percent and food prices jumped 13 percent. Saudi Arabia is restrained in its inflation fight by a currency peg to the ailing US dollar. The Saudis have repeatedly ruled out any change to the Saudi Riyal, which has been fixed at 3.75 to the dollar since 1986. Instead, the government has introduced cost of living allowances and welfare payments, tightened bank lending curbs, boosted subsidies and slashed import levies to offset the impact of price rises. Rice prices are surging as governments and importers rush to stock up the grain on growing fears the food staple will be in short supply. India banned non-basmati rice exports last month to try to ease pressure on prices. “The global inflation in prices of some commodities has been growing and poses risks,” Al-Sayyari said. “Decisions by some governments to ban exports may add inflationary pressures,” he said. With oil prices at record highs well above $100 a barrel, Gulf Arab economies are booming, driving demand for everything from housing to power and water. Saudi Arabia, the United Arab Emirates, Qatar and Bahrain have pledged to maintain the currency pegs to the dollar until the bloc achieves monetary union as early as 2010. Kuwait broke ranks with its neighbors last year by abandoning its dollar peg, arguing that dollar weakness was fuelling inflation by making some imports more expensive.
