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Kingdom’s headline inflation hits 4-year low in February

Saudi Arabia’s headline inflation hit a four-year low level of 2.8 percent in February, according to researchers and analysts.
“This is mostly due to lower food inflation,” explained Fahad Alturki, head of research at Jadwa Investment.
According to data released by Central Department of Statistics, prices of food and beverages rose 4.6 percent year-on-year in February, while housing and utility costs increased 4 percent.
Alturki said: “Our estimate of Saudi core inflation, which excludes food and rental, and housing-related services, slipped to 1.4 percent year-on-year and 0.03 percent month-on-month in February.”
He said: “Core inflation was pushed down by falling prices of the other goods and services group. The prices of the latter contracted by 0.4 percent year-on-year in February owing mainly to a 16 percent fall in jewelry prices, which in turn reflects falling in international gold prices.”
Alturki added: “Based on the above trends, there is little reason to expect a rise in inflation in the coming months, especially that rental inflation is gradually drifting downward and inflation in most of Saudi Arabia’s trading partners is set to remain relatively low.”
Paul Gamble, director, Sovereign Group at FitchRatings, commented: “Our forecast for average inflation this year is 3.2 percent. A planned large increase in public sector housing will start to have more impact on rents over 2014.”
Gamble added: “Labor market reform has yet to affect consumer prices. The purchasing managers’ index shows price pressures, and some private sector companies are reporting higher labor costs, although for some affected sectors, such as construction, there will be little pass-through to consumer prices.”
He said: “Fitch assumes that any impact on labor costs will be offset by easing rental inflation. Subdued international commodity prices will support the low level of inflation.”
Commenting on the latest government statistics, John Sfakianakis, chief investment strategist at Masic in Saudi Arabia, said: “Saudi inflation in 2013 reached 3.5 percent and for 2014 I expect an average annual rate of around 3.2 percent. This is neither too high nor too low that could lead to deflation, a concern that worries many in Europe and the United States.”
Sfakianakis added: “Global inflationary pressure is not around and that is good for Saudi Arabia as there is little pressure from the outside. Moreover, the dollar should begin to offer a respite in the coming months, which will help further attain cheaper imports. Rents should fall a bit more from here but not significantly and food prices have been on a declining trend for sometime and will continue to do so.”
Jarmo T. Kotilaine, a regional analyst, told Arab News: “I expect relative continuity as compared to this year. This assumes that food prices remain flat, of course.”
Jadwa Investment said in a recent report that inflation in January fell to its lowest level since August 2012, with food prices and rents, the two main sources of inflationary pressure, both easing.
Wholesale and global food prices data do not point to much inflationary pressure in the supply chain, said the report.