Saudi inflation slows

The Gulf's largest economy sees prices for food, rent and services slow to the lowest rate in a year.

Saudi Arabia's inflation slowed to its lowest rate in more than a year last month, falling to 6.9 per cent from 7.9 per cent in January. The news is likely to foreshadow a trend throughout the Gulf, as the global economic slowdown and a resurgent dollar make goods and services more affordable in the region, where most currencies are pegged to the US dollar. Last year, inflation rates rose to double-digit highs throughout the GCC, threatening to destabilise the region's economies. However, as global demand slowed and oil prices fell last year, prices have begun to stabilise. "It was a more abrupt fall-off than I think many expected," said Tim Fox, the chief economist at Emirates NBD. "The sharpness has probably been mirrored in other economies as well." Saudi Arabia is the largest economy in the GCC, and one of the few countries that publishes inflation figures monthly. The cost-of-living index rose to 120.6 points last month, compared with 112.8 points a year before, according to the country's Ministry of Economy and Planning. The most recent figures for the UAE show annual inflation at 11.1 per cent in 2007. In Kuwait, inflation fell to 10.4 per cent in November, according to the most recent data, down from a high of 11.6 per cent in August. Prices are expected to fall in the UAE this year as well. Earlier this week, the Minister of Economy, Sultan al Mansouri, said inflation could drop to between 5 per cent and 8 per cent, because of lower food and housing costs. However, he added that uncertainty in the world market resulting from the financial crisis made predictions difficult. On Tuesday, Standard Chartered Bank projected that inflation in the UAE could fall as low as 2 per cent this year. High oil prices - which boosted the region's spending and thereby contributed to rising prices last year - have fallen from a record US$147.27 in July to below $40 a barrel in recent weeks. Housing prices throughout the region have also begun to fall, with the property prices in Dubai alone having lost nearly a third of their value from last year's highs, according to some estimates. Less than a year ago, rapid inflation was the primary economic fear for the region. Now, with prices beginning to fall, slowing growth has become the primary concern. Governments throughout the region have pledged to continue spending at recent levels in order to stimulate growth. Saudi Arabia announced a 15 per cent increase in its budget for this year, with an emphasis on continued infrastructure spending. The UAE also released an expansionary budget, up 21 per cent from last year. [e-mail]