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Sun 7 Oct 2007 12:37 AM

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Saudi king demands inflation answers

Governors have been summoned to explain rising inflation, which hit seven-year high in August.

Saudi Arabia's King Abdullah has summoned the interior minister and provincial governors to explain rising inflation, which hit a seven-year high in August, Saudi media reported.

The king asked for "prompt reports" at the last weekly government meeting on Monday, Interior Minister Prince Nayef bin Abdul-Aziz said in remarks published on Thursday and Friday.

State-news agency SPA said the monarch met the interior minister and provincial governors on Wednesday.

Inflation in August was 4.4% from a year earlier, driven mainly by a record 12.1% jump in rents and a 6.6% rise in prices of food products, according to data released this week.

The data raised pressure on the central bank which is torn between the need to contain prices and avoid appreciation of its dollar-pegged currency.

In a full-page advertisement published on Saturday, the Chamber of Commerce and Industry in Jeddah, the kingdom's commercial capital, said the rise in prices was caused by external factors including the decline in the US dollar, which hit record lows against a basket of six currencies last week.

Al-Jazirah newspaper quoted Prince Nayef as saying it was important to examine whether the causes of inflation were domestic or external. The problem may have been blown out of proportion, he said.

"What is certain is that prices are higher in all neighbouring countries," he said.

Inflation is rising across the Gulf Arab region. In May Kuwait broke ranks with its neighbours and dropped its peg to the dollar, saying the US currency's decline was making imports more expensive and fuelling inflation.

The Saudi central bank has repeatedly ruled out any change in currency policy, which forces it to shadow US interest rate moves to maintain the relative appeal of the riyal and hampers the fight against inflation.

The world's largest oil exporter declined to match the US Federal Reserve's interest rate cut last month, driving the riyal to a 21-year high on speculation that the central bank would allow the currency to rise against the dollar.

Before that, the Shura Council which advises the government on draft laws called for action after inflation hit 3.83% in July.

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