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Fri 24 Dec 2010 10:43 AM

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Saudi inflationary risks likely to remain in 2011 – analysts

Kingdom is still vulnerable to food, dollar and real estate market shocks, say analysts

Saudi inflationary risks likely to remain in 2011 – analysts
Saudi Arabia’s official preliminary figures estimate inflation at 3.7 percent this year

Despite the gradual slowdown in Saudi inflation towards the end of 2010, the risks of rapidly rising costs remain substantial next year, leading economists have said.

During this year, inflation in the Gulf’s biggest economy peaked at just over six percent, helped by high food prices and the growing cost of housing in some of Saudi Arabia’s biggest cities.

“The baseline prediction is that inflation will still edge down little by little – and end up somewhere around four percent as the average base, but again the issue here is the risk,” NCB Capital chief economist Jarmo Kotilaine told Arabian Business.

“One of the main areas that Saudi Arabia is vulnerable to is food – and food is the most important portion of the consumer basket. When there are international market and weather disruptions, those can have a significant impact.”

Kotilaine also warned that a rising oil price – which some analysts have predicted could reach triple digits in 2011 – could begin to push up inflation in the same manner as 2007-8, when figures rocketed.

“What we see is the range of possible or plausible outcomes is wider than it has been in the past,” he added. “But in terms of the basic baseline trend it looks like the pressures are mitigated somewhat.”

Saudi Arabia’s official preliminary figures estimate inflation at 3.7 percent this year, although this should be revised upwards given other data which suggests it averaged 5.3 percent over the first 11 months. 

“We expect inflation to ease to 4.7% in 2011 from 5.3% this year, with rents and food prices the main contributors,” said Banque Saudi Fransi’s 2011 budget report. “Baseline effects should exert downward pressures on headline inflation, at least for the first half of the year.”  

Riyadh-based Jadwa Investment is predicting that inflation will stay at a high 5.3 percent throughout 2011.

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