Consumers warned of further inflation woes

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INFLATION BATTLE: Inflation will continue to rise during the second quarter, but at a slower pace, Sama said. (Getty Images)

Inflation in Saudi Arabia, which in April rose above 10% for the first time since the oil boom of the 1970s, will probably advance further this quarter albeit at a slower pace, the central bank said on Monday.

"Projections indicate a continued rise in the inflation rate during the second quarter of 2008, but at a slower pace than in the previous periods," the Saudi Arabian Monetary Agency (Sama) said in a report on its website. It did not give a forecast.

Government and private spending will spur price rises in the three months to June 30, though suppliers of goods and services are responding more to rising demand, Sama said.

"The pace of government and private spending... is increasing, which would strengthen the demand for all goods and services which may lead to more inflationary pressures in the economy," Sama said.

Annual inflation in the world's largest oil exporter rose for the 11th straight month in April to 10.5%, fuelled by rents and food prices.

The consumer price index added between one and 1.4 percentage points in each of the three months to the end of March, and 0.9% in April. The rise in April was the smallest since December.

Rents will continue to climb in the short-term due to a "shortage in housing, limited expansion in construction, due to high prices of developed land and the higher cost of construction due to high inputs of iron, cement and labor wage", Sama said.

A surge in global prices for commodities and foods is also affecting Saudi Arabia, a desert country that relies on food imports, Sama said.

"The Saudi economy is an open-market economy... therefore, the change in the prices of imported goods is an important factor affecting the level of domestic inflation," Sama said.

Inflation is a challenge across the Gulf where governments which peg their currencies to the ailing US dollar are raising wages and subsidies, bringing in price controls and tightening lending curbs to dampen the impact of price rises.

Subsidies targeted to help lower income Saudis, state employee cost-of-living allowances and lower import levies on various food items are among measures Saudi Arabia has introduced to tackle inflation this year.

Sama said it expects the impact of the measures to be felt more in the second quarter. (Reuters)

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