Oman May inflation at 25-month high; Saudi up in June

Higher commodity prices, weak dollar and increased gov't spending raising inflation levels in Gulf
Oman May inflation at 25-month high; Saudi up in June
(Getty Images)
By Reuters
Sun 10 Jul 2011 10:37 AM

Annual inflation in Oman hit the highest level in 25 months
in May due to a rise in food prices, data showed on Saturday, while living
costs in Saudi Arabia in June rose slightly from the previous month on food and
housing components.

Inflation in the Gulf, the world's top oil exporting region,
was expected to creep higher this year on robust global commodity prices, a
weak dollar and increased government spending following unrest in the Arab
world.

In Oman, annual inflation hit 4.4 percent in May, the
highest level since April 2009, data from the country's finance ministry
showed, after a 4.1 increase in the previous month.

On the month, consumer prices grew 0.4 percent in May, up
from a 0.3 percent rise in April. Consumer price growth was unchanged on both
annual and monthly basis in April.

Analysts expected prices in the small non-OPEC oil producer,
which was hit by public unrest this year, to edge higher on robust global food
and commodity prices as well as additional government spending to defuse social
tensions.

"Food prices are still pretty close to all-time highs
and it takes a while for these to get transferred to final consumers,"
said Paul Gamble, head of research at Jadwa Investment in Saudi Arabia.

Food costs, which account for the largest weight of 30.4
percent in the consumer basket, jumped by 0.9 percent month-on-month in May
after a 0.3 percent dip in April.

Rents, making up 21.4 percent in the basket, were unchanged
in May, the data showed.

"Retailers took advantage by increasing shelf prices
when Sultan Qaboos ordered a pay hike to all Omani workers in March,"
Salaam al-Rahbi, a financial analyst at Muscat Financial Company, said.

The usually tranquil Gulf Arab sultanate was hit by months
of protests in February, following uprisings that toppled rulers in Egypt and
Tunisia. Omanis, however, called mainly for higher wages, more jobs and an end
to graft rather than a change of government.

Some 100 people demonstrated in the Omani industrial city of
Sohar on Friday demanding the release of their colleagues who were jailed for
protesting earlier this year.

The country's finance minister said in June a $10bn aid
package pledged to Oman by its wealthier Gulf Arab neighbours was unlikely to
take off this year and spending will soar 11 percent on social measures.

Analysts polled by Reuters in June forecast average
inflation to reach 4.0 percent this year.

In Saudi Arabia, the world's top oil exporter, annual
inflation also edged higher to 4.7 percent in June, from 4.6 percent in May,
state news agency SPA reported on Saturday, quoting data from the Central
Department of Statistics.

Central banks in the Gulf, which needs to import most of its
food needs, have limited tools to combat price pressures as most of the
region's currencies are linked to the U.S. dollar.

On the month, price growth was unchanged at 0.4 percent for
the third month in a row in June.

Analysts, however, see price pressures growing in the next
month mostly due to the traditional pressure on food costs during Ramadan,
which starts in August, when families enjoy larger and more elaborate meals
after daylight fasting.

"We still have the pressure from international food
prices," Jadwa Investment's Gamble said. "Looking ahead to July, you
will start to see the pressures from Ramadan, food prices always jump during
Ramadan, we would expect a higher inflation reading next month."

Food prices, which have the largest weighting of 26 percent
in the consumer basket, rose by 0.5 percent on a monthly basis in June after
dropping by 0.3 percent in the previous month.

Housing costs, which account for 18 percent in the basket, edged
higher by 1.0 percent in June compared with a 0.6 percent increase in May.

Saudi inflation hit 5.1 percent in 2009, after a record high
of 9.9 percent in the oil-boom year of 2008, well above its long-term average
of around 1 percent.

Analysts polled by Reuters in June expect the kingdom's
average price growth at 5.6 percent in 2011.

Worried by unrest sweeping the Arab world, Saudi Arabia has
pledged to spend an estimated $130bn, or around 30 percent of its annual
economic output, on new houses, creating jobs, unemployment benefit and other
measures.

Central Bank Governor Muhammad al-Jasser said in June the
economy could grow around 6 percent this year rather than the 4.3 percent
currently estimated due to a recently unveiled social spending package.

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