Skyrocketing food and housing prices pushed Saudi Arabian inflation to a 30-year high of 10.6 per cent in June, but the latest official figures indicate that price increases in the region's largest economy could be levelling off. Gulf economies have seen inflation hit double digits in the past year, fuelled by a mixture of domestic factors including rising oil revenues, infrastructure investment and housing costs. External pressures including food prices and currency weakness associated with the peg to a depreciating dollar also helped drive inflation upwards. But the June figure was just 0.2 percentage points above that for May, indicating the rate of increase is slowing. "The general picture is that inflation figures are high, but appear to be stabilising," said Simon Williams, an economist at HSBC. "The annual rates have reached a plateau, but I think it will be some time before we see them retreat." The Gulf experienced the highest rate of inflation of any region last year, according to the International Monetary Fund (IMF). However, the IMF still expects the Gulf to lag behind the inflation rates of the emerging economies of the former Soviet republics this year. Food and beverage price inflation in Saudi Arabia stood at 15.8 per cent in June, up from 15.1 per cent a month earlier, while rent and utilities costs stood at 18.7 per cent, up from 18.5 per cent in May, the figures showed. Bahrain and Kuwait both reported inflation topping out in June and May, respectively. The UAE does not release monthly data, but plans to do so next year. Fabio Scacciavillani, an economist at the Dubai International Financial Centre, said strong demand from neighbouring countries for materials produced in Saudi Arabia were contributing indirectly to their neighbour's inflation. "Saudi Arabia is one of the main suppliers of raw materials such as cement to the region, and the high demands for these products has caused high inflation in Saudi Arabia," Mr Scacciavillani said.
Bahrain's annual inflation rate in June was 3.1 per cent, down from 6.2 per cent the month before; Kuwaiti inflation fell to 11.1 per cent in May, down from 11.4 per cent in April. Economists and officials expect inflation pressures to ease this year, because some food prices are dropping on increased supply and the dollar has stabilised after almost two years of continuous decline. All GCC countries, other than Kuwait, peg their currency to the dollar; Kuwait pegs its dinar to a basket of currencies including the dollar. Mr Scacciavillani said the principal driver of inflation, particularly in the UAE and Qatar, was inadequate infrastructure for their fast-growing economies. "The main thing is the bottlenecks in the economy; when the infrastructure catches up, probably in mid-2009, inflation will start going down," he said. @Email:mjalili@thenational.ae