Saudi Arabia’s Food Inflation Rate Drops To 4.6% In February

Saudi Arabia’s food inflation rate slowed to 4.6 per cent year-on-year in February – the lowest since November 2012- according to report by Jadwa Investment.

The report forecasted that this decline in domestic inflation might be sustained in the coming months due to an easing of the wholesale food price inflation and comparatively lower benchmark agricultural commodity price indices.

Wholesale food price inflation fell to one per cent year-on-year in February, down from over two per cent few months earlier while the benchmark agricultural commodity price indices were still lower than a year ago, the report found.

Housing inflation in the KIngdom was around four per cent year-on-year in February and it has oscillated between 3.5 per cent and 4.2 per cent since July last year, said Jadwa.

“We think this lack of direction in housing inflation is mostly due the uncertainty in the market as both developers and consumers await the impact of different government initiatives that aim to revive the sector with more favourable policies including a proposed tax on unused land,” the report said.

“As highlighted in previous inflation updates, we anticipate housing inflation to gradually trend downward as new supply of housing units balances the market, though further delays in the government housing initiatives is likely to keep rental inflation high.”

Saudi Arabia’s consumer price index (CPI) fell to a four year low of 2.8 per cent in February compared to 2.9 per cent in January this year.

The core inflation rate, which excludes food, rental and other housing related services, fell below 1.5 per cent in February for the first time since April 2011, the report found. Falling prices of other goods and services were attributed to the decline in the core inflation rate.

The report also estimated domestic inflationary pressure to remain strong although the contribution of external factors to inflation remains subdued.

“High consumer spending, exceptionally low interest rates, rising demand deposits and bank lending and recent labour market reforms will keep an upward pressure on domestic prices,” the report said.

The International Monetary Fund (IMF) recently pegged the Kingdom’s inflation rate at three per cent this year.

However, Saudi Arabia’s central bank governor Fahad al-Mubarak told a news conference on Sunday that results for the first few months of the year indicate that the inflation will be less than three per cent. But he added that the fund’s forecast was “reasonable”.