Saudi inflation accelerated to a nine-month high of 4.7 percent in March, led by rent, fuel and food costs. Consumer prices rose 0.5 percent in the month, the state- run Saudi Press Agency reported on Wednesday, citing data from the Central Department of Statistics.Annual inflation was 4.6 percent in February. An analyst said prices should continue to rise at around the same rate in coming months. The inflation rate has been increasing due to the economic recovery after falling to a more than two-year low in October. Finance Minister Ibrahim Al-Assaf said on Jan. 24 that the economy is expected to expand 4 percent this year after growing less than 0.2 percent in 2009. Month-to-month inflation in the world's largest oil exporter as measured by the cost of living index rose 0.5 percent to 126.7 points, SPA said. The global crisis has reduced inflation across the Gulf region from record highs in 2008. Price pressures are seen rising again as key economies in the oil-exporting region recover but inflation is expected to stay in the low single digits this year across the Gulf. “Inflation is slowly picking up. Economic activity is picking up. The usual culprits, food and rents, are driving inflation. In the next months there could be a fluctuation in a range of 4.4-4.7 per cent,' said John Sfakianakis, chief economist at Banque Saudi Fransi. The annual increase in the food and beverage price index was 5 percent in March, up from 4 percent the previous month, while it eased for the renovation, home rents, water and fuel index to 10.1 percent from a 10.6 percent annual rise in February. The food and beverage index accounts for a 26 percent weighting in the cost of living index. Saudi Arabia is investing $400 billion to upgrade infrastructure and help diversify its economy away from oil, aiming to attract foreign firms. Saudi inflation reached a record high of 11.1 percent in July 2008. In February the Saudi Arabian Monetary Agency (SAMA) said housing costs would keep inflation rising during the first quarter but a stabilization of food prices would keep it below the 1.5 per cent recorded in the previous quarter. “The good sign is that this represents higher demand in the economy,” said Sfakianakis. “The trade-off is you are having a pick-up in inflation,” he added. Inflation is likely to average 4.6 percent this year, Sfakianakis said, raising an earlier estimate of 4.3 percent. Central bank Governor Muhammad Al-Jasser said in a Jan. 23 interview that he's not planning to raise interest rates because inflation isn't a concern and demand isn't strong enough to require higher borrowing costs. Saudi Arabia's inflation rate slid to 3.5 percent in October after rising to 11.1 percent in July 2008. SAMA last year cut the repurchase rate to 2 percent, the lowest since 2004, and the reverse repurchase rate to 0.25 percent as the global credit crunch led to a slump in oil prices, crimping growth. “The central bank at the moment is still more concerned about growth,” said Sfakianakis. “But of course if inflation picks up more actively, the central bank will have to look at measures to address that.”
