Saudi claims inflation will 'stabilise' at 4% this year

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INFLATION FIGHT: Al-Sayyari said inflation would stabilise at 4% this year. (Getty Images)

Saudi Arabia's central bank governor said on Wednesday he expected inflation in the world's largest oil exporter to "stabilise" this year at last year's 4.1%.

"Inflation in 2007 was at 4.1%... we expect it to stabilise in 2008 and I hope it will decline," Hamad Saud Al-Sayyari told reporters in Riyadh on Wednesday. He did not give a reason.

Average inflation in Saudi Arabia, which pegs its riyal to the US dollar, hit a 16-year high of 6.5% in December, partly driven by a rise in global commodity prices and the declining US currency.

Al-Sayyari said the kingdom would revise its reverse repurchase rate, which it uses to track US Federal Reserve policy moves, depending on economic conditions.

The governor's prediction contrasts with that of investment bank Merrill Lynch, which on Sunday warned that inflation in the kingdom could average 6% this year, up from an average of 4% in 2007.

The soaring cost of living has become a major political issue in Saudi Arabia, with the government trying to address the problem through measures such as subsidies on imported rice and baby milk.

The government is also looking into increasing public sector pay, something a number of high profile Saudi companies have already done, as a way of reducing the burden on people.

In the latest move to tackle inflation, the government on Monday slashed import tariffs and government service charges by half as part of a 17-point plan to reign in rising prices.

The plan, approved at the weekly cabinet meeting chaired by Saudi King Abdullah, also increased social insurance by 10% and renewed its commitment to government subsidies for essential products.

The measures were taken after studying a detailed report on price hikes and inflation conducted by a panel from the Supreme Economic Council, according to the official Saudi Press Agency.

“The state will bear 50% of charges relating to passports, travel, vehicle licenses, transfer of vehicle ownership, and for the renewal of residential permits of domestic workers for three years,” Saudi daily Arab News quoted Culture and Information Minister Iyad Madani as saying.

“An annual inflation allowance of five percent would be added to the salaries of government employees... and [awards made to] pensioners for three years,” he told the paper.

The meeting also agreed to commence construction on additional low-cost housing for low-income families, a project the government has already allocated $2.6 billion in budget surplus for.

“Additional financial allocations will be made for such housing projects in the coming years,” Madani said.

The government will also intensify the monitoring of prices and heighten efforts to combat trade fraud, insisting that all shops place lists of product prices in a prominent position within stores.

In an effort to monitor the rising cost of housing in the kingdom, the cabinet also decided to establish a General Housing Authority, which will be operational by 2009. The move comes in response to reports that rents in some areas of Saudi have risen by as much as 50% in recent years.

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