JEDDAH: Saudi Arabia's annual inflation rate slowed slightly to 5.8 percent in October even as food and beverages prices rose, but monthly inflation stayed at 0.5 percent for the third month in a row, the Central Department of Statistics said on its website Saturday. Annual inflation in the Kingdom eased from 5.9 percent in September, continuing its decline from an 18-month high of 6.1 percent in August. The central bank has said it is not yet a concern. Food prices, which have the largest 26 percent weighting in the consumer price basket, jumped 1.6 percent month-on-month in October, while housing costs rose 0.6 percent, the data said. “Inflation is on a year-on-year decline although food inflation continues to climb as rents subside a little bit,” said John Sfakianakis, chief economist at Banque Saudi Fransi. “The outlook for the rest of the year is one of continuous but very gradual decline, with the average inflation for the year at 5.4 percent,” he added. Inflation accelerated to 6.1 percent in August. The rise was due to higher global food prices, not excessive money supply, central bank Governor Muhammad Al-Jasser said last month. “For 2011 the outlook is a bit better and inflation should fall below 5 percent on average due to base effects and some respite in food prices,” Sfakianakis said. “But rents should continue to remain high and keep headline inflation above historical levels.” The central bank last year cut the repurchase rate to 2 percent, the lowest since 2004, and the reverse repurchase rate to 0.25 percent. Saudi Arabia's economy is seen expanding by 3.8 percent this year, following a mere 0.6 percent expansion in 2009, helped by recovery in crude prices and generous government spending. The Kingdom's Finance Minister Ibrahim Al-Assaf said the country would spend more than budgeted this year. Economists believe that inflation will climb going into next year with the weak dollar adding pressure. “It is expected that this month and the next inflation will climb and even continue through the first half of next year, mainly due to the peg of the Saudi riyal to the declining dollar,” said Abdulhamid Al-Amry, a member of the Saudi Economic Association. “This has a negative effect, lowering the value of the riyal which results in rising costs,” he said. Meanwhile, sustained high rate of inflation in some GCC states might force a halt fiscal stimulus as early as 2011, a senior International Monetary Fund official warned Saturday. “Comfortable fiscal and external positions permit most GCC countries to maintain fiscal stimulus in 2010 and into 2011 if necessary,” John Lipsky, IMF first deputy managing director, said in a statement. “However, in some countries we are seeing early signs of a pickup in inflation. If sustained, this may call for a withdrawal of stimulus as early as 2011,” Lipsky said after a meeting with GCC finance ministers and central bank governors. Lipsky said the outlook for GCC countries has improved considerably thanks to the ongoing global recovery and the stabilization in oil prices. Inflation in five of the GCC's six states soared to double-digit figures before the global financial crisis, but then eased. Qatar, for example, posted inflation of 15 percent before the crisis and deflation during it. – Saudi Gazette with agencies But in recent months, prices have begun to rise again, with Saudi Arabia hitting an inflation rate of more than five percent and Kuwait recording the highest inflation rate in 18 months in September at 5.3 percent. The GCC states, which import almost everything, have blamed rising food prices for the current surge in inflation. In its quarterly regional outlook released two weeks ago, the IMF urged the Gulf states to raise spending in 2011 and maintain expansionary fiscal policy. Several GCC countries were able to implement a financial stimulus in the wake of the global financial crisis that alleviated its effect on their economies. Lipsky also said short-term challenges facing the GCC states “will be to support a revival in credit growth,” which decreased sharply with the global downturn. The IMF official also told reporters that relative stability in energy prices had a positive impact on the GCC economies and their recovery. “We have seen a rebound in growth in the non-oil sector of the region's economy, and we think that is going to continue in 2011,” he said. - Agence France
