Saudi inflation hits 10-year high

10 December 2007
Inflation has risen above 5 per cent for the first time in 10 years, driven by soaring rent and food costs.

The higher inflation rate will put additional pressure on the Saudi riyal’s peg to the dollar and the constraints that places on the central bank's ability to stem cost pressures.

The goods in Saudi Arabia’s inflation basket show that demand for housing is the main cause of the rising cost of living.

Rental price increases for the year to the end of October were 11.7 per cent, up from 11 per cent the previous month.

Food prices were the other main concern, with costs up 7.5 per cent for the year to 31 October, compared with 7.2 per cent for the year to 31 September.

Because the dollar peg forces Saudi Arabia to match low US interest rates, the kingdom is unable to absorb excess money in the economy increasing rates.

Instead, King Abdullah ordered subsidies to be placed on imported rice and baby milk on 9 December to protect consumers from higher inflation.

However, these measures will still fail to address the problems with housing supply and rising rental costs.

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