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Mon 14 Sep 2009 09:56 AM

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Saudi annual inflation eases to 4.1%

Annual inflation rate at end of Aug falls to lowest level in at least two years.

Saudi Arabia's annual inflation rate inched down to 4.1 percent in August from 4.2 percent in July, due mainly to a slowdown in the rise of home rents, official data showed on Sunday.

The cost of living index stood at 122.7 points in August, up from 122.2 points in July, the official SPA news agency said, citing official data. Annual inflation in July reached 4.2 percent, which was its lowest since July, 2007.

The annual rise in the rental index -- which includes rents, fuel and water -- eased to 13.1 percent in August down from 13.5 percent in July, the agency said.

For food and beverages index the annual increase was 1 percent in August, which is the same as in July.

Each of the two indices account for about a fifth of the cost of living index's overall weighting.

Analysts have been expecting the Muslim fasting month of Ramadan, which started on August 22, to cause a spike in food prices as families stock up for evening meals, but some retailers have disputed this argument.

"The main driver of inflation are food and rents. Demand for these is suppressed and you have lower activity, especially from the private sector," said John Sfakianakis, chief economist at Banque Saudi Fransi, affiliated to French Credit Agricole Group.

"The average inflation for the year could now average 4 percent which means that annual inflation could be as low as 3 percent in December," he added.

Saudi Arabia said last year it would invest around $400bn in the next five years, mainly in infrastructure as it seeks to counter the repercussions of the global crisis.

Inflation rates have been declining rapidly in the largest Arab economy as commodity prices slumped and a stronger U.S. dollar helped reduce import costs for the major oil exporter, which pegs its riyal to the greenback.

The Saudi central bank has said it expects the slide to continue for the rest of this year.

"Economic growth is still slow, bank lending is flat and imported inflationary pressures are modest," said Simon Williams, economist at HSBC Middle East. (Reuters)

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