Inflation at around 6% in some Saudi cities

WORST EFFECTED: Inflation in Saudi Arabian cities such as Jeddah, pictured, is higher than the national average. (Getty Images)

Inflation in three Saudi Arabian cities, including the capital Riyadh, rose to more than 5% in the third quarter, accelerating at a faster pace than the country average, the central bank said on Monday.

Price rises in Riyadh grew 5.9% in the three months ended September 30, while inflation hit 5.2% in Najran and 6.1% in Ha'il, the fastest pace in the oil producer's 16 cities, the Saudi Arabian Monetary Agency said on its website.

Inflation averaged of 4.4% in the largest Arab economy in the third quarter, the central bank said.

The dollar's weakness this year helped drive up food and beverage costs 6.5% in the third quarter, while rents jumped 9.5% in the period, the data showed. Saudi Arabia pegs its riyal currency to the dollar.

"The change in the prices of imported goods is an important factor affecting the level of domestic inflation," the central bank said.

Some 14.5% of Saudi Arabia's imports in 2006 came from the US, while 23.7% came from Europe in 2006, 9.5% from Japan and 8.1% from Germany, it said.

Saudi Arabia's King Abdullah has ordered subsidies on imported rice and baby milk to cushion consumers from rising inflation, according to a decree published this month.

Inflation in Saudi Arabia hit 5.35% in October, its highest since at least 1995. Average inflation in the country could rise to 4.1% in 2008 from 3.8% this year, a Reuters poll showed this month.

The central bank is constrained in the fight against inflation by the dollar peg, which forces it to track US monetary policy at a time when the Federal Reserve is cutting interest rates.

The Fed has cut 100 basis points since September 18 to contain the fallout from a mortgage crisis, and Saudi Arabia has followed by reducing some borrowing costs. (Reuters)

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