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Wed 12 Sep 2012 05:27 PM

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Saudi inflation falls to lowest level for 3 years

Annual inflation in Gulf kingdom eases to 3.8% in Aug, according to official data

Saudi inflation falls to lowest level for 3 years

Saudi Arabia's annual inflation eased to 3.8 percent in August, its lowest level in almost three years, although the monthly increase was the fastest in 10 months, data showed on Wednesday.

Consumer price growth in the world's top oil exporter has been slowing gradually since peaking at 5.4 percent in February and March, registering 4.0 percent in July.

The month-on-month rate edged up to 0.4 percent in August from 0.3 percent in the previous month, the data from the Central Department of Statistics also showed.

"Over the past year ... what had been driving inflation up slowed down," said Jarmo Kotilaine, an economist based in Saudi Arabia, who is covering the region. "There were no major harvest failures.

"This summer that changed due to droughts around the world and the positive dynamics will last for a little but not for long," he added.

Food costs, which account for a quarter of Saudi consumer expenses, rose 0.9 percent in August, the fastest clip in a year, although the annual rate fell to 3.3 percent from 4.0 percent in July.

Monthly growth in rents, one of key factors pushing living costs up in the past years, eased slightly to 0.1 percent in August, which was the smallest rise since December 2007.

On an annual basis, rental inflation decelerated to a 14-month low of 8.5 percent from 9.2 percent in July, the data showed, well below rates of over 20 percent in 2009 and 2008.

"The decline in rental inflation is due to two factors. First is the new rental regulation introduced few months ago and the other is that the construction sector has been active," said Fahad Alturki, senior economist at Jadwa Investment in Riyadh.

"There are new units coming to the market, easing the pressure on the housing market," he said.

Last year, the government promised to build half a million new homes to ease a housing shortage after social tensions fed the unrest that rocked much of the Arab world.

In July, the government passed a mortgage law to stimulate house building, but analysts believe high land prices may prevent any quick resolution to the problem.

Alturki also said that international food prices will put upward pressure on inflation in the coming months but a gradual decline in renovation and rents will work in the opposite direction.

"The rate of inflation will depend on how fast international food prices are rising. In addition, the expectation of another round of quantitative easing is likely to weaken the dollar which may help push domestic inflation," he said.

The Saudi central bank said last month that data available at the time indicated relative stability in inflationary pressures in the third quarter of this year.

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