Saudi firms hit by inflation, property costs

Soaring inflation and high real estate prices are having a negative impact on businesses in Saudi Arabia, where inflation hit a 30-year peak of almost 10% in March, an SABB bank survey showed.

The survey found 61% of executives were concerned about inflation while 56% said rising real estate costs will hurt their operations. The survey of 729 executives was done by HSBC's Saudi affiliate this month before the latest inflation data, and was released late Sunday.

Inflation in the world's largest oil exporter accelerated for a 10th straight month to 9.6% in March as housing costs soared 15.8%, and food and beverage costs rose 14.2%. The figures, the highest since at least the oil boom of the 1970s, came out on Sunday.

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"Inflation will have a negative impact on business sentiment over the next two quarters," said SABB, which expects inflation in Saudi Arabia to average 7.9% this year. Average inflation in the largest Arab economy was 4.1% in 2007.

"Continuous and steep appreciation in real estate prices is impacting negatively on business confidence," SABB said.

Saudi Arabia, which pegs its riyal to the dollar, has tried to offset the impact of price rises on its 25 million people through cost-of-living allowances, lower import levies on various food items, tighter bank lending curbs and subsidies.

"Although the announced subsidies will have an impact in terms of cushioning incomes during a period of rising inflation, broader prices will continue their upward trend," SABB said.

A majority of respondents, 77%, said they did not expect Saudi Arabia to revalue its currency in the next two quarters.

The dollar has tumbled to record troughs against the euro and a basket of major currencies this year, driving up Saudi import costs.

But policymakers in the kingdom have repeatedly said they would stick with the dollar peg until Gulf Arab oil producers create a single currency as early as 2010.

Oil prices would likely stay above $100 a barrel in the next two quarters, about two-thirds of executives said in the survey. Oil prices hit a record of almost $120 a barrel on Monday. (Reuters)

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