Saudi Arabia Inflation Report – March 2012 – Jadwa

Published: April 11, 2012

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Editor’s Note:

This week Riyadh-based Jadwa Investment circulated its monthly Inflation Report which noted the March year-on-year rate of inflation held steady at 5.4 percent. 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.

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[Complete report [English] with very helpful charts, graphs and tables at this link.]

[Complete report [Arabic] with very helpful charts, graphs and tables at this link.]

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Inflation Report — March 2012

Year-on-year inflation stayed at 5.4 percent in March. Higher food prices offset falls in almost every other component of the cost of living index.

Food prices were the only part of the cost of living index for which year-on-year inflation rose in March. Fish, eggs and fresh fruits were the main contributors to the rise, with each up by at least 9 percent in year-on-year terms and by more than 3 percent since February. With fresh products the source of much of the inflation, it is likely that local factors were a reason for the rise in food prices. In addition, international food prices have gone up so far this year. According to the UN Food and Agriculture Organization, global food prices rose by 2.5 percent over the first three months of the year, though the March reading was 7 percent lower than the level in March 2011.

Inflation for “other goods and services” dropped to its lowest level since April 2010. This was driven mainly by gold prices, which fell to a three-month low in March. In year-on-year terms, the growth in gold prices was at its second lowest since September 2009. Gold prices have fallen further so far in April.

The small and mainly downward movement in other components of the inflation basket suggests that inflation could start to fall over the next few months. Our assumption is that a slowing global economy will pull down global commodity prices, which will reduce external sources of inflation.

Most elements of the cost of living index were unchanged in March in monthly terms, though total monthly inflation stayed at 0.3 percent, owing to a rise in food prices. Food prices climbed by 0.7 percent, their biggest increase since August, which coincided with Ramadan, when food prices always jump. Prices of most fresh products leapt, with garlic, shrimp and pomegranate the highest rises, climbing by more than 10 percent.

Monthly rental inflation slowed to 0.5 percent. Rents were effectively flat in 7 of the 16 cities surveyed. The fastest monthly growth, of 0.8 percent, was in Mecca, Dammam and Najran. Lower jewelry prices (which are driven by gold prices) was the reason for the fall in inflation for “other goods and services”.

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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.

For comments and queries you can contact the authors:

Paul Gamble, Head of Research
pgamble@jadwa.com
or:
Brad Bourland, CFA, Chief Economist
jadwaresearch@jadwa.com

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