Inflation in Saudi Arabia at new peak

Published January 18, 2008

RIYADH, Jan 17: Inflation in Saudi Arabia is now at all time high, hitting a new peak in December; rising half a point on the previous month to 6.5 per cent, highest since at least 1991, statistics released here show. Inflation was recorded at 5.35 per cent in October and six per cent in November.

The figures will add to pressure on the government to tackle rising prices and will keep alive debate on whether the authorities will consider revaluing the riyal for the first time in 22 years.

Inflation in the kingdom has been on an upward trend since May. King Abdullah has repeatedly voiced his concerns about the situation, and this month instructed officials to give priority to achieving growth “while protecting citizens’ living standard and the purchasing power of citizens”.

Although the Saudi rate is below other Gulf States, such as the United Arab Emirates, where inflation is double digit, the rise in prices has been a shock to many Saudis who enjoyed nearly two decades of one per cent inflation or less. But economists say Saudis will have to get used to inflation, with the government having few means available to reduce the pricing pressures.

Inflationary trends in the kingdom are resulting in pressure on the authorities to revalue riyal, blaming the weakening dollar for the problem.

Saudi officials have so far been resisting the call to devalue, as it had other ramification too, saying they would not alter the kingdom’s policy as the weakness of the US currency was having a relatively small impact on inflation. They added that 65 per cent of Saudi imports were in dollars.

However, there are signs now that Gulf Arab oil producers, including Saudi Arabia, could revalue their currencies together if the US dollar weakens further, with appreciations of eight per cent in the UAE dirham and Saudi riyal likely before April, Standard Chartered said in a report.

Markets piled pressure on Gulf currencies last year as speculation mounted that more Gulf Cooperation Council countries would follow Kuwait and abandon links to the weak dollar partly to curb imported inflation. Kuwait ditched the peg in May.

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