Saudi inflation hurtles toward 10%

Inflation in Saudi Arabia, the world's largest oil exporter, accelerated to almost 10% in March, its highest since at least the oil boom of the 1970s, on soaring rents and food prices.

The rental index of the largest Arab economy, which pegs its currency to the ailing US dollar, soared 15.8%, while food and beverage costs rose 14.2%, the state-controlled Saudi Press Agency (SPA) reported on Sunday, without citing anyone. The rental index includes fuel and water costs.

The overall cost of living index accelerated for a tenth straight month, rising 9.6% to 114.2 points in the year to March 31, compared with 104.2 points, the SPA data showed. Saudi inflation almost doubled in the six months to March.

Saudi Arabia's Central Department of Statistics compiles inflation data.

"There is a greater level of disparity in living standards in Saudi Arabia and the government will be mindful about the impact of higher prices on the local population," said Monica Malik, senior economist in Dubai at investment bank EFG-Hermes.

Price rises are plaguing the world's biggest oil-exporting region, where economies are surging on a near six-fold increase in oil prices during the last six years.

Dollar pegs force the Gulf states, bar Kuwait, to track the US in cutting interest rates, fuelling economic growth and boosting inflation. With the dollar tumbling this year to record lows against the euro and a basket of major currencies, some imports have become more expensive.

Saudi inflation could surpass 10% this year before easing in the second half as anti-inflationary government measures take hold and lower global demand for commodities feeds into prices, the country's central bank governor said last week.

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In March, the goods and services index rose 14.5%, the data provided on SPA showed.

The government has introduced cost of living allowances and welfare payments, tightened bank lending curbs, boosted subsidies and slashed import levies to offset the impact of price rises on its 25 million people.

Saudi Arabia, whose main exports consist of oil and petrochemical products, is a major importer of food products and relies heavily on foreign labour.

It has repeatedly pledged to maintain its currency peg to the dollar until Gulf Arab states achieve monetary union as early as 2010. (Reuters)

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