Saudi SAMA sees further drops in inflation in Q1

COOL DOWN: Official data showed annual inflation in Saudi fell to 7.9% in Jan. (Getty Images)

Saudi Arabia's central bank on Monday said it expects inflation to further decline in February and March after it hit a 12-month low in January, due mainly to a slower rise in home rents and drops in steel and food prices.

"On the basis of current data, there is a general trend pointing to a continued retreat of inflationary pressures in the Saudi economy during the first quarter," the Saudi Arabian Monetary Agency (SAMA) said in a report on its website.

Domestically, SAMA expects home rents to slow down last year's rally on growing supply and a decrease in construction costs such as steel and cement.

"Competitiveness between local producers has grown more intense ... It is expected that a decline in steel prices will continue in the first quarter of 2009 due to the impact of the global crisis on prices of all commodities," SAMA said.

Food prices are also expected to decline in conformity with the global trend, the central bank said.

Externally, SAMA expects weaker global demand resulting from the financial crisis to reflect positively on the cost of the kingdom's imports, which mainly involve foodstuffs, machinery and other industrial equipment.

The decline in global freight costs and the recent rise in the exchange rate of the US dollar, to which the local riyal currency is pegged, should ease further inflationary pressures in the kingdom, it added.

Annual inflation in Saudi Arabia fell to 7.9 percent in January after the pace of rise in rents and food prices eased during a regional economic slowdown.

Saudi inflation galloped to a peak of 11.1 percent in July, the same month oil prices hit highs above $147 a barrel before tumbling to virtually a quarter of that level in the following seven months. (Reuters)

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