Businesses in Saudi Arabia are reeling from untamed inflation and high real estate prices, the latest SABB bank survey showed. The survey found 61 percent of executives were concerned about inflation while 56 percent said rising real estate costs will hurt their operations. Inflation in the Kingdom accelerated to almost 10 percent in March, rising 9.6 percent to 114.2 points in the year to March 31, compared with 104.2 points, the SPA data showed. The rental index in the Kingdom jumped 15.8 percent, while food and beverage costs rose 14.2 percent, SPA added. The rental index includes fuel and water costs. In March, the goods and services index rose 14.5 percent, the report further said. “Inflation will have a negative impact on business sentiment over the next two quarters,” said SABB, which expects inflation in Saudi Arabia to average 7.9 percent this year. Average inflation in the largest Arab economy was 4.1 percent in 2007. “Continuous and steep appreciation in real estate prices is impacting negatively on business confidence,” SABB said. Dollar pegs force the Gulf states, bar Kuwait, to track the US in cutting interest rates, fuelling economic growth and boosting inflation. With the dollar tumbling this year to record lows against the euro and a basket of major currencies, some imports have become more expensive. The Saudi government has tried to offset the impact of price rises through cost-of-living allowances, lower import levies on various food items, tighter bank lending curbs and subsidies. “Although the announced subsidies will have an impact in terms of cushioning incomes during a period of rising inflation, broader prices will continue their upward trend,” SABB said. A majority of respondents, 77 percent of the 729 executives surveyed, said they did not expect Saudi Arabia to revalue its currency in the next two quarters. The dollar has tumbled to record troughs against the euro and a basket of major currencies this year, driving up Saudi import costs. SAMA govenor warned earlier that inflation in the Kingdom could hit 10 percent in 2008, highest level since 1970s. But policymakers in the Kingdom have repeatedly said they would stick with the dollar peg until Gulf Arab oil producers create a single currency as early as 2010. That date with destiny is looking more and more like the date when we will see a coordinated GCC revaluation to the dollar, or a pegging to a new currency basket. Oil prices would likely stay above $100 a barrel in the next two quarters, about two-thirds of executives said in the SABB survey. A monthly US Energy Department report said demand for finished petroleum products dropped 8.5 percent in February from January, and demand for gasoline fell by 6.2 percent. OPEC oil supply fell in April to its lowest this year as a strike cut Nigerian output, a Reuters survey showed on Thursday. Output from the Organization of the Petroleum Exporting Countries slipped to 31.64 million barrels per day in April from 32.05 million bpd in March, according to the survey of oil firms, OPEC officials and analysts.
