Business & Money | Monday 29 August, 2016 10:22 am |

According to a report on the Saudi Arabian economy, there is a deceleration in prices to 3.8 percent year-on-year compared to 4.1 percent in June, based on The General Authority for Statistics (GAS) Consumer Price Index data for July. Food inflation turned negative for the first time since January 2010, while housing inflation remained as the main contributor to overall inflation during July.

The report, released by Jadwa Investment, also states the estimate of core inflation, which excludes food and rent and other housing services, also slowed in July, reaching 3.9 percent year-on-year compared to 4.3 percent in June. Subdued economic activity amidst negative growth in broad money supply (M3) has contributed to the recent slowdown in the core index.

Housing inflation recorded an acceleration in July to 7.5 percent, up from 7.2 percent in June. The acceleration came as the rentals for housing subgroup, the largest contributor towards housing inflation, rose to 3.4 percent year-on-year in July, up from 2.9 percent recorded in the previous month. While this still reflects elevated demand for rentals amidst a shortage of housing units, it is lower than the same period last year.

 

Persistent deflation in international food prices have finally set into domestic foodstuffs… Housing inflation recorded an acceleration in July to 7.5 percent.

Further, the report mentions that while external factors' contribution to inflation will remain subdued, particularly due to a stronger US Dollar and weaker global economic growth, the expectation is that domestic inflationary pressure will be subdued for the remainder of 2016. Domestic price pressures should be alleviated by the negative growth in broad money supply (M3), which is in part due to falling bank deposits. 

Foodstuffs – with the highest weight in the CPI basket – has been on a decelerating trend since July 2015. The report’s outlook is that housing inflation will remain the main contributor towards overall inflation, with the increase being driven by strong domestic demand for housing units. The combination of these factors maintains a forecast of an average annual inflation rate at 3.9 percent for 2016.