Consumer relief as inflation begins to ease

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CONSUMER RELIEF: Inflation in Saudi Arabia eased to 10.4 percent in May, down from 10.5 percent the previous month. (Getty Images)

Annual inflation in Saudi Arabia eased slightly to 10.4 percent in May down from a more than 30-year high a month earlier, but rising rental and food costs continued to pressure the world's top oil exporter.

The cost of living index for the largest Arab economy was 115 points on May 31 compared with 104.20 points a year earlier, the official Saudi Press Agency (SPA) said on Saturday, citing a report by the Ministry of Economy and Planning.

The rental index which includes rents, fuel and water soared 18.5 percent while and food and beverage costs advanced 15.1 percent, the report said.

"The picture in the Gulf now is that main drivers of inflation are the costs of housing and food," said Marios Maratheftis, regional head of research at Standard Chartered Bank in Dubai.

Inflation is a key challenge across the Gulf Arab region, where currencies are pegged to the ailing dollar, as their economies surge on windfall revenues from oil that has been racing to record highs.

"What is happening in Saudi Arabia is that inflation is stabilising at very high levels," Maratheftis said.

"Inflation in the double digits was not common in a country where at times it was at 1 or 2 percent."

Annual inflation in Saudi Arabia hit 10.5 percent in April, its highest level in more than 30 years. In May, it dropped 0.2 percent month on month after adding 0.9 percent month on month in April.

"The fall to 10.4 from 10.5 is negligible and not an improvement... what is important to have in mind is that inflation across the Gulf Arab region is remaining and not falling and I see this trend as continuing," Maratheftis said.

Dollar pegs force the Gulf Arab states, bar Kuwait, to track the United States in cutting interest rates. With the dollar tumbling this year to record lows against the euro and a basket of major currencies, some imports have become more expensive. (Reuters)

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