JEDDAH: Economists here have called on the authorities – including the Ministry of Commerce and Industry and the Consumer Protection Society - to urgently tackle rising inflation in the country. They said the price hikes of numerous commodities on the local market have been caused by the strengthening of European and Asian currencies, a weakening dollar, heavy floods in Asia and Eastern Europe and drought in the Arab region. Issam Mustafa Khalifa, a member of the Saudi Economic Society and chief marketing planning specialist, said, “If inflation continues to rise and the Ministry of Commerce continues to underestimate its importance and does not find radical solutions, it will cast a shadow on the middle class in the country. The national economy is based on the middle class. It is the largest segment of society, with a nucleus of employees, teachers, university professors and others of middle income.” “There are numerous intersecting reasons for the rise in prices, including the fact that the Kingdom imports many of its essential and luxury commodities from Europe and East Asia on the basis of the US dollar. Therefore, as a result of the rise in the exchange rate of the European and Asian currencies and the drop in the exchange rate of the US dollar, the prices of commodities imported from Europe and East Asia have risen.” Added to this is the drop in the purchasing power of the Saudi riyal by 30 percent over recent years, according to statistics from the Ministry of Commerce and Industry. “In other words, this means a drop in real per capita income – which is a rise in the general price level for manufactured commodities compared to the individual's fixed income,” Khalifa added. He added that there is a lack of supervision and control from the Ministry of Commerce and the Consumer Protection Society. Other factors include some unscrupulous merchants stockpiling some commodities resulting in an artificial rise in prices. Fadhl Bin Saad Al-Bu'ainain, a bank economist, said there are various factors that have raised the inflation rate in the Kingdom. These can be classified as major factors and assisting factors, with the impact of the latter being less than that of the former. The two main factors can be summarized as “the financial policy and monetary policy” being followed in the Kingdom. The financial policy is based on expanded spending, supporting the stimulus programs and setting up mega development projects. All these are positive developments, but the main negative effect includes fueling of domestic inflation, he said. Al-Bu'ainain added that increased spending can help to raise per capita income in efficient economies through expansion of the manufacturing sectors, creating jobs, eradicating unemployment and raising wages. This can be noticed in the Western economies. As for the Saudi market, expanded spending, even though beneficial with regard to infrastructure and development projects, does not contribute to the creation of jobs, raising wages and improving the income of citizens, he argued. On the other hand, it causes a rise in demand for commodities and services and as a result leads to a rise in the cost of living and the domestic inflation rate, he added. Dr. Abdul Rahman Ibrahim Al-Sanee', Consultant Economist and Professor of Marketing at the College of Business Administration in Jeddah, said, “The major reason for the rise in prices of consumer commodities in our local markets can be attributed to the wave of heavy floods that swept through some countries, particularly the Asian continent and the countries of Eastern Europe, as well as the drought that hit most of the Arab region. This has resulted in low harvests of major crops. These two reasons in turn have caused a decrease in the supply of consumer commodities compared to the increasing demand for them, not to speak of the rise in oil prices to the countries exporting these commodities. “Furthermore, wholesale and retail traders are trying to increase their profit margins. Therefore the cost of transporting the commodities, and the profit margins, are added to the price of the commodity sold to the final consumer.”
