Editor’s Note:
Last week Standard & Poor’s affirmed its long- and short-term foreign and local currency sovereign credit ratings for Saudi Arabia at “AA-/A-1+. In the announcement, S&P noted, “the government’s very strong external and fiscal positions, which have been built over a number of years. By prudent macroeconomic management, the government has reduced its general government debt, generating additional fiscal space for countercyclical policies. The ratings are constrained by underdeveloped public institutions, lower GDP per capita relative to similarly rated sovereigns, and limited monetary flexibility. We note that Saudi Arabia is making tangible progress in transparency and data availability, most recently with the inaugural publication of data on the country’s international investment position.”
Among the data provided by the government has been the report of annual inflation rates released every month by the Central Department of Statistics. This week Jadwa Investment released its monthly Inflation Report this week which noted the April year-on-year inflation dropped to 5.3 percent in April, down from 5.4 percent in March. The Jadwa report provides analysis of inflation stats and trends. It is provided here for your consideration. We thank Mr. Paul Gamble, Chief Economist and Head of Research, for sharing this report here.
[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 dipped to 5.3 percent in April from 5.4 percent in March. Lower food price inflation was the main reason for the decline. Rental inflation picked up.
Inflation in food prices, the largest component of the cost of living index, fell back to the February level of 4.3 percent in April, after jumping over 5 percent in March. Prices of some fresh vegetables fell in April after leaping in March, suggesting that the previous rise was the result of temporary local conditions, though difficulties securing fresh products from Syria and neighboring countries continue to push up the prices of other fresh products. A jump in food price inflation in April 2011, which distorted the base from which the inflation number was calculated, also had a dampening effect.
Partially offsetting the impact of lower food price inflation was a rebound in rental inflation, which climbed back over 9 percent to close to a two-year high. We think that higher consumer incomes are putting upward pressure on rents at a time when the bulk of anticipated new supply has still to reach the market.
Elsewhere, inflation for clothing and footwear hit its high point since at least January 2003. Prices rises were fairly widespread, rather than focused on one or two specific products. In contrast, inflation for other components of the cost of living index that are generally driven by consumer demand (home furniture and education and entertainment) has stabilized in the past few months and in the case of transport and telecoms, fell to its lowest level since July 2011.
Monthly inflation eased moderately to 0.2 percent in April. Rents remained the main source of monthly inflation, rising at their fastest pace since January. Prices of clothing and footwear increased by 0.3 percent and have only fallen in one month since the end of 2010. Cotton and wool prices jumped in early 2011 and the effects of this may still be working through the local supply chain. Higher wage costs in producer countries and strong domestic demand may also be contributing to higher clothing prices. Food prices posted a very small rise in April; global food prices remain subdued and slipped slightly last month according to the UN Food and Agriculture Organization. Prices of home furniture also edged up, with imported products accounting for the bulk of the rise. The other four components of the cost of living index were unchanged.
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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 author:
Paul Gamble, Chief Economist and Head of Research
pgamble@jadwa.com
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