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Saudi inflation seen above 5pc

Riyadh, September 27, 2010

Inflation in Saudi Arabia will likely remain above 5 per cent until the first half of 2011 due mainly to a chronic shortage in low- to medium-level housing, state-owned National Commercial Bank (NCB) said on Monday.

Consumer price growth in the world's top oil exporter and the biggest Arab economy climbed to an 18-month high of 6.1 year-on-year in August, far above levels seen in the fellow Gulf oil producers but still below 2008 record double-digit peaks.

"Rental costs have been the main factor behind recent inflationary pressure as the young population increases its demand for affordable low-to medium-level housing while real estate developers focus on expensive commercial office and luxury housing," NCB said in an emailed report.

"(This) widens the gap between (housing) demand and supply," it added.

The implementation of a long-awaited mortgage law may help to reduce pressure on rental prices by easing financing and boosting supplies, but it also could stimulate demand, it added.

"We anticipate that the inflation rate will continue to be above 5 per cent in 2010 and the first half of 2011," NCB concluded.

Muhammad al-Jasser, governor of the Saudi central bank, said on Sunday inflation was worrying but that he did not plan to change interest rates as it is driven by factors outside the bank's reach such as a surge in food prices.-Reuters




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