Inflation in Saudi Arabia ticked up to 4.7% in June from 4.6% in May and the rate is expected to gain momentum in the second half of 2011 because of high public spending and other factors.
The Riyadh based Jadwa Investments said that the slight rise in YoY inflation in June was a result of a small increase in rents and price rises elsewhere that appear related to higher consumer spending.
Jadwa said that although the June rise was very modest it is notable that it was the result of increases in prices that are largely driven by domestic consumer demand rather than international factors such as commodity prices. YoY inflation for home furniture was at its highest since September 2010, education and entertainment was at 16 month high and clothing and footwear inflation was positive for the first time since August 2009.
The study said that we think these price rises reflect the additional spending stimulated by the bonus awarded to all public-sector and many private-sector workers. Rental inflation also rose, for the first time since last September, though the increase was only slight.
For the H1 of the year, inflation averaged about 4.8% hovering around 4.7% for each of the last 4 months we think inflation will rise in the next few months. The impact of stronger consumer demand and higher government spending will continue to grow. In addition, in July there is likely to be some upward pressure on food prices in line with the normal trend in the run up to Ramadan.
The study showed that monthly inflation stayed at 0.4% for the third month in a row in June. Rental inflation was around one per cent its highest level since May 2010. It is possible that landlords have raised rents in response to the bonus for public sector workers. As rents are generally paid on an annual or semi annual basis this would take some time to be fully reflected in the data. The rise in monthly inflation for home furniture and education and entertainment looks related to higher consumer spending.
(Sourced from Emirates Business 24/7.com)
