Inflation in Saudi Arabia fell slightly last month to 10.9 per cent, after three consecutive months of steady increases. And in Cairo, the Egyptian finance minister, Youssef Boutros-Ghali, said that the country's inflation rate, which reached a 16-year high of 23.6 per cent last month, was expected to decline as the price of food drops. "The worst is behind us," he said yesterday. Analysts said the record-setting inflation rates across the region were finally beginning to level off.
"If you look at the numbers, inflation seems to be peaking, or is at least close to a peak across the region," said Paul Gamble, the head of research at Jadwa Investment in Riyadh. "Economies in the Gulf have different dynamics when it comes to inflation, but their economies are broadly similar." Inflation is a serious economic worry throughout the GCC, where most countries peg their currencies to the dollar. The dollar's weakness during the past year has stoked inflation by driving up the cost of imports, especially food. Windfall oil profits, driven by record energy prices, have also contributed to inflation by fuelling ambitious government spending and rapid economic growth.
Saudi inflation came down from a 30-year high of 11.1 per cent in July. In comparison, Qatar reported 14.8 per cent inflation for the first quarter of this year, just shy of a record, while the UAE reported 11.1 per cent for last year. Abu Dhabi's Department of Planning and Economics, which compiles inflation figures, has promised to produce more up-to-date figures ever since accidentally releasing inaccurate figures at the beginning of this month.
Saudi Arabia is one of the few countries in the GCC to publish inflation figures every month. Inflation rates in Saudi Arabia "might slip back into single digits by the end of the year, but I think it's going to be very high on a historical basis for the next two to three years," Mr Gamble said. "Rent is the key component driving inflation, and the underlying market forces driving rent prices vary by country. However, everyone is suffering from food prices, and everyone is suffering from the exchange rate and those two factors have eased," he said.
"Although we saw a drop in August, we expect it to go up again in September because of Ramadan, and stay more or less level through to the end of the year. Increased demand for food during the month of Ramadan almost always drives food prices up for a period." The Saudi cost-of-living index rose 11.6 points to 117.9 at the end of last month, according to Central Department of Statistics data published by the state-run Saudi Press Agency, and reported by Reuters. Food and beverage prices gained an annual 15.8 per cent last month, while the bundle of goods including rents, fuel and water contributed 18.5 per cent, down from 19.8 per cent in July.
In an International Monetary Fund report on Friday, economists Klaus Enders and Oral Williams wrote: "Inflation [in the Gulf] is expected to gradually subside starting in late 2008 as global commodity prices ease, US monetary policy firms and supply bottlenecks are overcome, with infrastructure and housing investments coming on-stream." tpantin@thenational.ae