Saudi's annual headline inflation hit a four-year low of 2.8 per cent in February from 2.9 per cent the previous month helped by a fall in food prices, said a report.

On a monthly basis, the kingdom's inflation also eased to 0.1 per cent in February compared with 0.2 per cent in January, stated Saudi-based Jadwa Investment in its report

As per Jadwa estimate, Saudi core inflation, which excludes food and rental and housing-related services, slipped to 1.4 per cent year-on-year compared with 1.6 per cent in January.

Core inflation was pushed down by falling prices of the other goods and services group. The prices of the latter contracted by 0.4 per cent year-on-year in February owing mainly to falling jewellery prices, which contracted by 16 per cent year-on-year, following a similar fell in international gold prices in February compared to its level a year earlier.  

As expected, food inflation maintained a downward trend, hitting a 15-month low in February, it stated.

Housing inflation continues to hover in a closed range as the market anticipates the impact of government housing initiatives, it added.
 
According to Jadwa, international conditions provide a benign backdrop to inflation in the Kingdom though any downward pressure is likely to be limited given strong domestic inflationary factors.
 
Core inflation was pushed down by falling prices of the other goods and services group. The prices of the latter contracted by 0.4 per cent year-on-year in February owing mainly to falling jewelry prices, which contracted by 16 per cent year-on-year, following a similar fell in international gold prices in February compared to its level a year earlier, said the report.
 
As expected, food inflation slowed to 4.6 per cent year-on-year in February compared with 5 per cent in January putting the food inflation at its lowest level since November 2012.

"Looking forward, there is little reason to expect a major rise in domestic food inflation over the coming few months for two main reasons. First, wholesale food price inflation eased to 1 per cent year-on-year in February, down from over 2 per cent few months earlier. Second, prices of many agricultural staples have risen since the end of January, but benchmark agricultural commodity price indices are still lower than they were a year ago," stated the Jadwa report.
 
At 4 per cent year-on-year in February, housing inflation continues to hover in a closed range between 3.5 per cent and 4.2 per cent since July last year.

"We anticipate housing inflation to gradually trend downward as new supply of housing units balances the market, though further delays in the government housing initiatives is likely to keep rental inflation high," said the report.
 
This gradual downward trend in domestic inflation since end of November last year is in line with inflation rate in major trading partners.
 
"While the external factors' contribution to Saudi inflation will remain subdued, we expect domestic inflationary pressure to remain relatively strong," stated Jadwa in its report.

"High consumer spending, exceptionally low interest rates, rising demand deposits and bank lending and recent labor market reform will keep an upward pressure on domestic prices. Latest monetary data show the growth of demand deposits hitting a 10-month high of 4.3 per cent month-on-month in January," it added.-TradeArabia News Service