Saudi inflation last month dropped to its lowest level in nine years, driven by the strengthening riyal and a global dip in food prices, according to data from the kingdom’s Central Department of Statistics.
Annual inflation fell to 2.1 per cent – its lowest level since 2006.
Food inflation stood at 1.7 per cent year-on-year in February. That represents a drop of 0.4 percentage points against the previous month’s figure. The price of food comprises more than 20 per cent of consumer expenditure, for the purposes of the inflation index.
The rising dollar has pushed up the purchasing power of the Saudi riyal to which it is pegged, as strong US growth figures and the expectation of future interest rate rises drives the dollar higher against international currencies.
This has boosted the value of the riyal against the currencies of the kingdom’s major trading partners, cutting its import bill.
The Food and Agriculture Organization’s food price index indicates that global food inflation is at its lowest level since July 2010. Cereals, meat, and sugar fell in February compared to the previous year.
Capital Economics said that Saudi Arabia’s inflation level will hover around 2 per cent this year, as the US dollar is likely to appreciate further on the back of expected interest rate rises.
Last month’s purchasing managers’ index, a survey of business people in Saudi Arabia, indicated that both input and output costs for companies in the country had either fallen or remained static.
Rising house prices and subsidy reform could push prices higher later in the year, analysts warned. High levels of government spending on infrastructure, confirmed in December’s annual budget, continue to power the housing market, according to the real estate consultancy JLL.
The lower oil price could persuade policymakers to reduce generous government subsidies on fuel and electricity, which would push up costs for consumers, according to a research note from the Economist Intelligence Unit.
abouyamourn@thenational.ae
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