Annual inflation in Saudi Arabia fell to 3.5 percent in October from 4.4 percent in September, official data showed Sunday. The Kingdom's cost of living index was 124.3 points in October up from 120.1 points a year earlier, the data published by the official statistics authority showed. “Although inflation has come down on an absolute basis, month-on-month it still remains high and it could very well average above 5 percent for the year,” said John Sfakianakis, chief economist at Banque Saudi Fransi. “A slight increase in food prices and high rental costs, as well as dollar weakness, will contribute to inflation remaining historically high.” The Saudi central bank said earlier this month it kept interest rates unchanged in the third quarter, viewing a further rate cut as unlikely to spur lending while a rate hike was unnecessary given tepid inflation. The Saudi Arabian Monetary Agency (SAMA) held its main rate at 2 percent in the third quarter because of declining inflation and a need to support lending in a banking sector hit by debt restructuring concerns in family firms. It has slashed its benchmark lending rate by 350 basis points since October 2008 as an oil price collapse sent the top Arab economy into a downturn and inflation fell from record highs. Analysts have said the Saudi easing cycle was probably over for now and the central bank also needs to watch for potential signs of inflationary pressures after consumer prices rose for the first time in four months in September. Saudi Arabia, like its Gulf Arab neighbors, pegs its currency to the US dollar. Kuwait dropped the link in 2007, opting for a peg to a currency basket.
