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Dubai: Saudi inflation hit 7 per cent in January, its highest level in more than a quarter century, as rents and food costs spurred price rises in the world's largest oil exporter for a straight ninth month.
Saudi Arabia has been grappling with inflationary pressures as the economy, the largest in the Arab world, booms on a near five-fold rise in oil prices since 2002 and because it pegs its riyal to the weak US dollar, pushing up some import costs.
Rents in the kingdom jumped 16.7 per cent year on year in January, data from the Central Department of Statistics showedon Saturday. Housing costs were the main driver of inflation, at its highest since at least 1981, said John Sfakianakis, chief economist at SABB bank, HSBC's Saudi affiliate.
"It is becoming obvious that the rental component is having a greater upward impact on inflation than any other item," he said. "Demand continues to outpace supply and in an environment where prices are rising, rents do not seem ready to subside."
Demand for office space alone surged 130 per cent in 2007 over the year earlier, Sfakianakis said.
The cost of living index was 111.7 points on Jan. 31 compared with 104.4 points a year earlier. Prices in January rose 1.36 per cent from December, the fastest month-on-month increase in at least nine years.
Annual inflation hit 6.5 per cent in December.
The Saudi government has tried to offset the impact of rising prices on its 25 million people through measures including public sector cost of living allowances, welfare payments and subsidies.
But like most of its neighbours in the world's biggest oil-exporting region, Saudi Arabia's dollar peg forces it track American monetary policy at a time when the Federal Reserve is cutting interest rates to ward off recession.
Food and beverage costs, which are impacted by a rise in global commodity prices and a weaker currency, rose 7.9 per cent in January, the data showed.
Saudi Arabia last year imported almost 25 per cent of its goods from Europe and 8.4 per cent from Japan, while another 13.4 per cent came from the United States, according to central bank data.
Survey: Negative impact
Nearly half of firms surveyed in Saudi Arabia last month expected inflation to have a negative impact on their business and a third said they would pass on higher costs, SABB bank said.
In the survey, which showed high business confidence, more than a third of respondents said they expected Saudi Arabia to revalue its US dollar-pegged riyal by the end of September, the bank said.
Saudi Arabia's dollar peg limits its ability to fight inflation, which hit 7 percent in January, as it must mirror US interest rate moves at a time when the United States is cutting rates to ward off recession.
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