Saudi inflation to rise to 2.8%

Inflation in Saudi Arabia is likely to increase to 2.8 % in 2007, from 2.2 % the previous year, Al-Rajhi Bank & Investment Corp. said in a report this week.

"In 2007, consumer and investment demand, especially in the construction sector, is likely to continue putting upwards pressure on prices," the Gulf's largest lender by market value, said in its July monthly report.

"Furthermore, bottlenecks in the labour market contributed significantly to the upward pressures on prices as the costs of labour and materials have increased," it added.

Saudi inflation rose to a five-month high of 3.1 % in June as food and housing costs climbed, official data showed.

Analysts say a declining dollar has also played a role, although the government of the world's largest oil exporter has ruled out a revaluation of its dollar-pegged currency.

U.S. bank Citigroup said in a research report this month that Saudi inflation would average about 2.7 % in 2007.

It said government investment in infrastructure was driving up construction costs and that rising prices could force the government to cut prices on some commodities.

The Saudi central bank said in July it was not concerned about inflation and that it saw no reason for the government to sell bonds to soak up liquidity.

Mohammed Al-Jasser, deputy governor of the Saudi Arabian Monetary Agency (SAMA) said in an interview with Al Arabiya Television “The inflation (level) is not a reason for concern. And there is no inflationary pressure resulting from government spending.”

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