Saudi Arabia Inflation Report – February 2012 – Jadwa

Published: March 14, 2012

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Editor’s Note:

This week Riyadh-based Jadwa Investment circulated its monthly Inflation Report which noted the February year-on-year rate of inflation increased to 5.4 percent, the highest since December 2010, lifted by another increase in rents, and other domestic inflationary pressures continued to rise. The Jadwa report provides analysis of inflation stats and trends.  It is provided here for your consideration.  We thank Mr. Paul Gamble and Mr. Brad Bourland, Head of Research and Chief Economist respectively for sharing this report here.

[Click here for original report with insightful graphs]

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Jadwa Inflation Report – February 2012


Another increase in rents lifted year-on-year inflation to 5.4 percent in February, the highest since December 2010, from 5.3 percent in January. Other domestic inflationary pressures continued to rise.

Most components of the cost of living index rose in February, owing to strong domestic demand. Most significantly, rents rose again. At 9.3 percent, rental inflation was at its highest since May 2010. We think this increase is the result of rising disposable incomes among the national population; specifically some of those with jobs or new sources of income from government programs may be entering the rental market, or at least landlords are raising rents on the assumption that this will happen. At the same time, additions to the supply of housing continue to be small. Indications are that work on new housing construction is picking up, but it will take some time for this to reach the market.

Food prices, the largest item in the cost of living index, recorded the biggest gain in year-on-year terms in February, rising to a six-month high. The rises were concentrated in the prices of fresh foods, which may reflect higher costs or reduced supply of products originating in or transiting through Syria. International food price inflation (measured by the UN Food and Agriculture Organization’s index) fell for the ninth consecutive month. Inflation for clothing and footwear, education and entertainment and home furniture continued to rise, with both of the former at long-term highs.

Monthly inflation rose to 0.3 percent in February from 0.1 percent in January. Although this was the highest for five months, it is slightly below the average monthly rise during 2011. The jump in rents in monthly terms was much less than in January, and broadly in line with February readings in recent years (monthly rental inflation tends to be higher in the first half of the year). Nonetheless, the rise in rental inflation over the past three months (2.4 percent) is higher than for any three-month period since mid-2009. Fresh fruit and vegetables, eggs and fish were the main source of the jump in food prices; prices of watermelons and pomegranates were up by more than 10 percent in February. Most other components of the cost of living index were either stable or up slightly in February.

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For comments and queries please contact the author:
Paul Gamble
Head of Research pgamble@jadwa.com
or:
Brad Bourland, CFA
Chief Economistjadwaresearch@jadwa.com

Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555 Kingdom of Saudi Arabia
www.jadwa.com

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About Jadwa Investment – Jadwa Investment is a Saudi Closed Joint Stock company operating under the supervision of the Saudi Arabian Capital Markets Authority (CMA). Under the CMA decision published on August 21, 2006, Jadwa was awarded a license to offer all types of investment services including dealing, managing, custody, arranging and advising. All investment services offered by Jadwa Investment are supervised by a Shariah Supervisory Board and are fully Shariah-compliant.

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