Inflation Report Second Quarter 2007
Prepared by:
Saudi Arabian Monetary Agency Research and Statistics Department
Table of Contents
1- Introduction
2- Historical Overview of Inflation
3- Current Performance of Inflation Indicators in the Kingdom 3-1 All Cities Cost of Living Index
3-2 Wholesale Price Index 3-3 GDP Deflator
4- Geographical Distribution of Inflation by City
5- Inflation and Foreign Trade with Major Trading Partners of the Kingdom 6- Indicators of the General Trend and Fluctuation in Inflation Rates
7- Factors Affecting Inflation Rate in the Kingdom 8- Conclusion
- List of Tables and Charts -
Table 1: The General Cost of Living Index (for all cities) and its Major Groups
Table 2: Quarterly and Annual Cost of Living Indices up to the End of the Second Quarter of 2007(1999=100)
Table 3: Quarterly and Annual Wholesale Price Indices up to the End of the Second Quarter of 2007 (1988= 100)
Table 4: Nominal GDP Growth and Annual Rate of Change in the Deflator Table 5: Cost of Living Indices by City
Table 6: Sources of the Kingdom’s Imports and Inflation Rates Table 7: Descriptive Statistics for Monthly Inflation Rates
Table 8: Descriptive Statistics for Quarterly Inflation Rates: Second Quarter 2002- Second Quarter 2007 Table 9: Factors Affecting Inflation Rate in the Kingdom
Chart 1: The Relationship between Change in the General Index and Change in the Figures of Subgroups Chart 2: Quarterly Developments in the General Cost of Living Index
Chart 3: Quarterly Developments in the General Wholesale Price Index Chart 4: Annual Change in the Non-oil GDP Deflator during 2001-2006
Chart 5: Change in the General Index in the Second Quarter of 2007 Compared to the 1st Quarter of 2007 Chart 6: Change in the General Index in the Second Quarter of 2007 Compared to the 2nd Quarter of 2006 Chart 7: The General Trend in Quarterly Inflation Rates
Chart 8: The General Trend in Monthly Inflation Rates
Chart 9: Comparative Graph for Quarterly Inflation Rate, Growth in Money Supply (M3) and Oil Prices
1- Introduction
Inflation (the continuous rise in the general level of prices) is a phenomenon which goes in line with economic growth. For example, most industrial countries register positive rates of inflation with an escalating pace when experiencing economic boom and high level of employment.
In general, determinants of inflation in an economy include international factors, such as trends in commodity prices and the activity of the global economy and developments of international financial markets; and other domestic factors, such as the aggregate demand and supply in the economy, costs of raw materials and wages as well as other factors associated with money supply and bank credit.
This report highlights inflation rates in the Saudi economy and their general trends using the general cost of living index in the Kingdom (issued by the Central Department of Statistics and Information.) Some parts of the report also review other indices, such as the general wholesale price index and the GDP deflator, which is used as a measure of the overall level of prices for the economy as a whole.
2- Inflation Trends during the Past Five Years
The average inflation rate as measured by annual changes in the cost of living index during the last twelve months ended June 2007 rose by 2.8 percent while the average during the preceding five years (July 2001 - June 2006) was 0.5 percent. During the last twelve months ended June 2007, inflation rates exceeded their levels recorded in the preceding five years. The group of goods and other services stood at (6.9 percent), the group of food and beverages (6.4 percent), the group of renovation, rent, fuel and water (housing and appurtenances) (3.5 percent), the group of medical care (2.1 percent) and the group of house furnishing (0.7 percent), (Table 1 and Chart 1).
Chart 1 compares the average level of inflation over the preceding five years with the inflation level during the last twelve months. Points at the left of Line 45° (in the
2007 compared to the average during the preceding five years (the opposite in the negative part).
Table 1: Change in the General Cost of Living Index and its Major Groups Weights
(Relative Importance)
(%)
Average Index for the Period July 2001 - June
2006
Average Index for the Current Period
July 2006 – June 2007
General Index 100 0.5 2.8
Food and Beverages 26 2.2 6.4
Fabrics, Apparel and Shoes 8 -1.2 -1.6
Renovation, Rent, Fuel and Water
(Housing and Appurtenances) 18 0.0 3.5
House Furnishing 11 -0.6 0.7
Medical Care 2 0.1 2.1
Transport and Telecommunications 16 -1.4 -3.9
Education and Entertainment 6 -0.2 -0.1
Goods and other Services 13 2.1 6.9
Source: Central Department of Statistics and Information
General Index Renovation, rent,
fuel and water
Health care
Goods and other services Food and beverages
Transport and telecommunication
Education &
entertainment Housing furniture
Fabrics, apparel and shoes
4.0- 3.0- 2.0- 1.0- 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
4.0- 3.0- 2.0- 1.0- 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Average inflation level during the preceding five years (July 2001 - June 2006)
Average level of current inflation (July 2006 - June 2007
Chart 1: Comparison between levels of inflation during the last twelve months and those of the preceding five years.
3- Current Performance of Inflation Indicators in the Kingdom
3-1 All Cities Cost of Living Index
This index is the most widely used measure of inflation in the Kingdom. It measures changes in consumer prices of goods and services. Total goods and services included in this index are 406 commodities compiled on a monthly basis for sixteen cities. Table (2) shows all cities’ cost of living indexes, quarterly (every three months) and annual rates of changes up to the end of the second quarter of 2007.
Table (2) shows that the average cost of living index for the base year (1999=100) registered an increase of 2.2 percent in 2006 compared to that of 2005. It stood at 101.8 in 2006 compared to 99.6 in 2005.
Data in Table (2) and Chart (2) indicate an increase of 3.0 percent in the rate of change during the second quarter of 2007 compared to the corresponding quarter of the previous year. This increase was attributable to rises in the group of renovation, rent and fuel by 6.4 percent, the group of food and beverages by 5.7 percent, and the group of goods and other services by 3.2 percent.
101.3
101.9
103.2
104.1 104.3
99.5 100.0 100.5 101.0 101.5 102.0 102.5 103.0 103.5 104.0 104.5 105.0
2nd quarter 2006 3rd quarter 2006 4th quarter 2006 1st quarter 2007 2nd quarter 2007
Chart 2: Quarterly Developments in the General Cost of Living Index
Table 2: Quarterly and Annual Cost of Living Indices up to the End of the Second Quarter of 2007
Annual
Averages Quarterly Indices
(1999 = 100)
Groups of Goods and Services
2005 2006
Second Thir
Quarter Quarter
Second
%change of
nd
%change of 2nd
pr
Annual Average Quarter
2006
d Fourth First Quarter
2006 101.9
2006 2007 104.1
Quarter 2007
2 quarter 07 against previous
quarter 07 against 2nd
quarter of evious year quarter
2006
General Index 101.899.6 101.3 103.2 0.2104.3 3.0 2.2
Food and Beverages 112.2106.5 110.8 112.0 115.8 118.6 117.1 -1.3 5.7 5.4 Fabrics, Apparel and Shoes 87.788.3 88.4 87.2 87.2 86.4 85.6 -0.9 -3.2 -0.7 Renovation, Rent, Fuel and Water 101.0100.0 100.6 101.3 102.2 104.1 107.0 2.8 6.4 1.0 House Furnishing 95.294.9 94.9 94.7 96.2 95.9 95.9 0.0 1.1 0.3 Medical Care 102.7101.4 101.9 103.5 103.7 103.8 104.1 0.3 2.2 1.3 Transport and
Telecommunications 88.991.8 88.6 87.5 87.6 87.8 87.6 -0.2 -1.1 -3.2 Education and Entertainment 98.798.4 98.7 98.4 98.8 98.7 98.4 -0.3 -0.3 0.3 Goods and other Services 114.6106.4 114.2 117.4 117.3 116.8 117.9 0.9 3.2 7.7 Source: Central Department of Statistics a d Infor ation n m
3-2 Wholesale Price Index
ly commodity prices, which represent 160 items sold on primary
he table indicates that the wholesale price index during 2006 was 125.6 against 124.2 d
ed an increase of 6.3 percent during the second
The index measures on
markets in the Kingdom. The following is a table showing quarterly and annual wholesale price indices up to the end of the second quarter of 2007.
T
uring 2005, increasing by 1.1 percent.
The general wholesale price index record
quarter of 2007 compared to the second quarter of 2006, due to a rise in the groups of food and live animals by 11.8 percent, chemicals by 7.8 percent and other commodities by 9.3 percent.
Tab Quarterly and Annual Wholesale Price Indices up to the End of the Second Quarter of 2007
Annual
Average ces
le 3:
(1988 = 100) Quarterly Indi Groups of Goods
2005 2006
Second Quarter
Third
Quarter Quarter Quarter
Second Quarter
% change
of 2nd %change of 2nd quarter 07
Annual A 2007
quarter 07
against against corresponding
quarter of previous year
verage Fourth First
2006 2006 124.8
2006 2007
first quarter
07
2006
General Index 125.6124.2 123.5 130.2128.6 131.3 0.8 6.3 1.1 1. Food & Live Animals 132.6127.6 129.3 131.7 140.3 143.1 144.5 1.0 11.8 3.9 2. Beverages & Tobacco 128.9130.1 128.9 128.9 128.9 128.8 129.6 0.6 0.5 -0.9 3. Crude Materials (excep
fuel)
t 184.6189.2 185.2 185.8 187.4 188.7 194.4 3.0 5.0 -2.4 4. Mineral Fuels & related
products 192.6215.2 184.8 184.8 184.8 184.8 184.8 0.0 0.0 -10.5 5. Vegetable Oils & Fats 114.7114.1 114.6 114.4 115.3 115.3 116.2 0.8 1.4 0.5 6. Chemicals & Related
Products 143.0134.5 140.9 142.0 153.4 153.2 151.9 -0.8 7.8 6.3 7. Manufactured Goods
classified by substance
117.4
120.0 119.4 121.1 121.7 123.5 125.9 1.9 5.4 2.2 8. Machinery & Transport
Equipment 114.4110.3 114.3 114.1 116.3 117.3 118.0 0.6 3.2 3.7 9. Msc. Manufactured
Articles 100.997.8 100.0 101.2 102.0 104.7 105.2 0.5 5.2 3.2 10. Other Commodities 127.0104.1 127.6 127.4 131.6 137.2 139.5 1.7 9.3 22.0 Source: Central Department of Statistics and Information
Chart 3: Quarterly Developments in the Wholesale Price Index 123.5
128.6
131.3 130.2
124.8
118.0 120.0 122.0 124.0 126.0 128.0 130.0 132.0
2nd quarter 2006
3rd quarter 2006
4th quarter 2006
1st quarter 2007
2nd quarter 2007
3-3 GDP Deflator
tor measures the prices of commodities, which are produced domest
Chart 4: Annual Change in the Non-oil GDP Deflator during 2001-2006
Table 4: Nominal GDP Growth and Annual Rate of Change in the Deflator
Years
)
ate
This indica
ically, through the deflator of oil sector, non-oil sector and GDP. The non-oil deflator reflects domestic inflation since it is not influenced by world oil prices. Table (4) shows the deflator, the growth rate of the annual GDP and the annual inflation rate during the period from 2001 to 2006. The non-oil deflator registered a decrease of 0.1 percent compared to an increase of 4.1 percent during 2005.
Note: the left axis above shows GDP growth
Growth Rate of GDP Non-oil GDP
Annual Inflation R at Current Prices Deflator
100 = 199
( (%)
2001
-2.6 0.4 -1.1
2002
3.0 -0.7 0.2
2003
13.8 3.1 0.6
2004
16.8 3.8 0.3
2005
26.1 4.1 0.7
2006
10.6 -0.1 2.2
-5 0 5 10 15 20 25 30
2001 2002 2003 2004 2005 2006
-2.0 -1.0 0.0 1.0 2.0 3.0 4.0 Growth rate of GDP at current prices 5.0
Non-oil GDP Deflator Annual inflation rate
Source: Central Department of Statistics and Information
4- Geo the Kingdom
percent to 104.3 i
he general cost of living index (all cities) rose by 3.0 percent in the second quarter
Table 5: Cost of Living Indices per City
graphical Distribution of Inflation Rate in
The general cost of living index (for all cities) registered a rise of 0.2
n the second quarter of 2007 compared to the first quarter of the same year. Six cities (Riyadh, Jeddah, Al-Tai’f, Tabuk, Jazan and Al-Baha) have recorded higher rates than the rate of change in the general index. The remaining ten cities recorded lower rates than the rate of change in the general index (Table 5 and Chart 5).
T
of 2007 compared to the second quarter of the preceding year. Five cities (Riyadh, Buraidah, Dammam, Najran and Al-Baha) recorded rises in index higher than the rate of change in the general index, but the rest of the cities have recorded less inflation rates except for Sakaka and Abha where the index declined by 0.6 percent and 0.4 percent respectively (Table 5 and Chart 6).
2006 2007
Second
Q Q
Third Fourth First Second Quarter uarter Quarter uarter Quarter
Quarterly Annual
General Index 101.3 10 9 103.2 104.1 104.3
Change*
Change
(%) (%)
1. 0.2 3.0
(all cities)
Riyadh 100.7 101.5 103.0 104.2 105.1 0.8 4.3
Makkah 102.6
101.1
102.2 104.2 103.0
104.1 103.0
104.2 103.3
0.1 0.3
1.6
Jeddah 101.5 2.2
Tai’f adi
103.5 107.2 104.7 104.8 105.5 0.7 2.0 Al-M nah
ntral Department of Sta d I orm
arison between the second of 2 7 a econ qua 006.
98.8 98.6 100.0 101.7 101.1 -0.6 2.3 Buraidah 101.7 103.4 104.0 105.7 105.1 -0.6 3.3 Dammam 101.5 102.6 105.5 106.7 106.8 0.1 5.2 Hafoof 102.5 102.7 103.3 103.6 103.6 0.0 1.1 Abha 102.4 102.0 102.0 101.6 101.8 0.2 -0.6 Tabuk 103.2 103.6 104.4 104.4 105.0 0.5 1.7 Ha’il 102.0 101.9 102.7 104.9 104.8 -0.1 2.8 Jazan 102.5 102.3 102.4 103.1 103.5 0.4 0.9 Najran 102.2 103.3 104.4 105.8 105.9 0.1 3.6 Al-Baha 103.4 104.5 105.4 106.3 106.8 0.4 3.3 Sakaka 98.9 98.4 98.2 99.0 98.5 -0.5 -0.4 Arar
: Ce
95.4 95.6 96.4 97.9 97.2 -0.7 1.9 Source
* Comp
tistics an nf ation.
quarter 00 nd the s d rter of 2
0.7-
0.2 0.8
1.0- 0.8- 0.6- 0.4- 0.2- 0.0 0.2 0.4 0.6 0.8 1.0
Chart 5: Change in the General Index in the Second Quarter of 2007 Compared to the First Quarter of 2007
3.0
0.6-
5.2
1.0- 0.0 1.0 2.0 3.0 4.0 5.0 6.0
Chart 6: Change in the General Index in the Second Quarter of 2007 Compared to the Second Quarter of 2006
5- Inflation and Foreign Trade with Major Trading Partners of the Kingdom
The Saudi economy is an open-market economy which is reflected by the volume of imports from trading partners of the Kingdom. Therefore, the change in the prices of imported goods is an important factor affecting the level of domestic inflation. High degree of economic openness of a country indicates a possibility that the inflation rate would be affected by change in the prices of imports. Table (6) shows the values of the Kingdom’s imports from major trading partners during 2006 compared to 2000.
The United States was the largest trading partner of the Kingdom during 2006.
Imports from the US amounted to Rls 36.6 billion during 2006 against Rls 21.8 billion in 2000, rising by 68.0 percent, though there was a decline to 14.7 percent in the share of imports from USA during 2006 compared to 19.3 percent during 2000. The rate of inflation in the USA decreased to 3.2 percent during 2006 compared to an inflation rate of 3.4 percent during 2000.
The figures indicate a relative stability in the share of imports from the Euro zone countries (twelve states up to the end of 2006). It amounted to 23.9 percent during 2006 compared to 23.7 percent in 2000. Imports from these countries stood at Rls 59.3 billion during 2006 against Rls 26.8 billion in 2000.
The data indicate a rise in the Kingdom’s imports from Japan by 8.0 percent and from Germany by 8.2 percent. Inflation rates increased in both countries during 2006 to 0.2 percent and 1.8 percent respectively.
Table 6 on the Sources of the Kingdom’s Imports shows an increase in the inflation rate in the People's Republic of China from 0.4 percent in 2000 to 1.5 percent in 2006, and a rise in its share of imports to the Kingdom from 4.0 percent in 2000 to 8.7 percent in 2006. It is also noticed that India's share of imports to the Kingdom rose from
2.8 percent to 3.7 percent in 2000 and 2006 respectively. Inflation rates in India rose from 4.0 percent in 2000 to 6.1 percent in 2006.
Table 6: Sources of the Kingdom’s Imports and Inflation Rates (
Imports million Riyals) Inflation (%) Share of Imports (%) Rate Country
2000 2006* 2000 2006* 20062000 United States
21,802 36,631 19.3 14.7 3.4 3.2 Japan
11,837 19,949 10.5 8.0 -0.4 0.2 Republic of China
4,485 21,716 4.0 8.7 0.4 1.5 United Kingdom
7,308 9,938 6.5 4.0 0.9 2.3 South Korea 9,5443,846 3.4 3.8 2.3 2.2
India
3,132 9,291 2.8 3.7 4.0 6.1 Australia
2,907 6,561 2.6 2.6 4.5 3.5 Euro Zone Countries
** 26,787 59,269 23.7 23.9 2.1 2.2 Including:
Germany
9,164 20,430 8.1 8.2 1.4 1.8 Italy
4,698 9,751 4.1 3.9 2.6 2.2 France
4,675 9,720 4.1 3.9 1.8 1.9 Other countries
31,136 75,506 27.5 30.9 Total
113,240 248,405
* Preliminary data
** Data of Romania and Bulgaria are not available for 2006
Source: Central Department of Statistics and Information, and IMF.
6- Indicators of the General Trend and Fluctuation in Inflation Rates
Since stability of the general price level is very important in decision-making at the micro level and of decisions related to general policies at the macro level, it is imperative, therefore, to measure the overall trend of volatility in prices and observe the volatility range, particularly at the medium and long terms. This section of the report highlights the general (Trend) and degrees of fluctuations (Volatility) in the inflation rates in the Kingdom (according to the general cost of living index).Tables 7 and 8 provide descriptive statistics for the last twelve months (July 2006 - June 2007) and on monthly inflation rates for the preceding five years (July 2002 to June 2006). It also gives descriptive statistics for quarterly inflation rates during the period from the second quarter of 2002 to the second quarter of 2006. The average quarterly inflation rate amounted to 1.08 percent for the general index with a standard deviation of 1.01 and the range (the difference between the maximum value and the minimum value) was 3.27.
Most of the volatility in the quarterly inflation rates during the period from the second quarter of 2002 to the second quarter of 2007 was accounted for by the group of goods and other services (average = 3.38 with a standard deviation = 2.81 and range = 9.27), followed by the group of food and beverages (average = 3.31 with a standard deviation = 1.94 and range = 7.75). On the other hand, quarterly inflation rates of the group of medical care averaged 0.57 percent, but with less volatility as evident from its standard deviation of 0.79 percent.
The two charts (7) and (8) below show inflation performance (quarterly in the former and monthly in the latter), and its general trend measured by the moving average of inflation rate (for every four quarters in the former, and 12 months in the latter). It is obvious that inflation rates generally tended to rise, particularly after mid 2006.
-0.40 -0.20 0.000.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60
Second Quarter 02 Third Quarter Fourth Quarter First Quarter Second Quarter 03 Third Quarter Fourth Quater First Quarter Second Quarter 04 Third Quarter Fourth Quarter First Quarter Second Quarter 05 Third Quarter Fourth Quarter First Quarter Second Quarter 06 Third Quarter Fourth Quarter First Quarter Second Quarter 07
Chart 7: The General Trend in Quarterly Inflation Rates
-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2
Jul- 02
2003 2004 2005 2006 Jun-
07 Moving Average 12 months Monthly inflation rate of the general index (%)
Chart 8: The General Trend in Monthly Inflation Rates
Table 7: Descriptive Statistics for Monthly Inflation Rates (%) Monthly Inflation Rates per Group
Transport and Telecomm-
unication
Goods and other Services Fabrics,
Apparel and Shoes
Renovation Rent, and
Fuel
General Index
House Furnishing
Medical Care
Education and Entertainment Food and
Beverages
July 2002- June 2006
0.73 2.76 -1.26 0.02 -0.54 0.22 -1.32 -0.22 2.70
Average
0.61 2.73 -1.12 0.00 -0.52 0.20 -1.15 -0.25 2.43
Median*
0.58 1.17 0.90 0.62 0.87 0.24 1.50 0.52 2.20
Standard Deviation
2.43 5.33 0.44 1.20 0.96 0.69 0.99 0.61 10.30
Maximum Value
0.00 0.00 -3.25 -1.38 -1.98 -0.20 -5.34 -1.01 -0.19
Minimum Value
2.43 5.33 3.69 2.59 2.94 0.89 6.33 1.62 10.49
Range**
July 2006- June 2007
2.79 6.36 -1.63 3.55 0.75 2.10 -3.87 -0.08 6.91
Average
2.87 6.38 -1.42 3.20 0.90 2.06 -4.68 0.00 7.71
Median
0.39 1.18 1.10 2.08 0.55 0.10 2.21 0.14 2.63
Standard Deviation
3.57 9.38 -0.34 7.04 1.37 2.27 0.92 0.10 9.69
Maximum Value
2.21 4.91 -3.51 1.10 -0.32 1.97 -5.39 -0.30 1.99
Minimum Value
1.36 4.47 3.17 5.94 1.68 0.29 6.32 0.41 7.70
Range***
* Month with corresponding month in previous year. ** Median
*** Range – expresses the difference between the maximum value and minimum value.
Table 8: Descriptive Statistics for Quarterly Inflation Rates:
Second Quarter 2002 - Second Quarter 2007 (%) Quarterly Inflation Rates per Group
Goods and other Services Fabrics,
Apparel and Shoes
Renovation Rent, and
Fuel
Transport and Telecomm-
unication
General Index
House Furnishing
Medical Care
Education and Entertainment Food and
Beverages
1.08 3.31 -1.31 0.69 -0.29 0.57 -1.75 -0.19 3.38
Average
0.55 3.10 -1.04 0.00 -0.41 0.20 -1.21 -0.17 2.89
Median
1.01 1.94 0.91 1.74 0.93 0.79 1.77 0.46 2.81
Standard Deviation
3.14 7.72 0.08 6.47 1.16 2.17 0.80 0.54 9.24
Maximum Value
-0.14 -0.03 -3.13 -1.32 -1.88 -0.20 -5.30 -0.83 -0.03
Minimum Value
3.27 7.75 3.21 7.78 3.03 2.36 6.10 1.38 9.27
Range
* Quarter with corresponding quarter in previous year. ** Median
*** Range – expresses the difference between the maximum value and minimum value.
7- Factors Affecting Inflation Rate in the Kingdom
Many factors play a significant role in affecting inflation rate, and the influence of these factors differs from one to another according to the nature of the domestic economy. Table 9 shows the relative changes of the most significant factors affecting the inflation rate in the Kingdom. These factors are concentrated in the demand side, especially the government expenditure, level of liquidity. Broad money supply (M3) increased by 19.3 percent in 2006, compared to 11.6 percent in the preceding year. In the second quarter of 2007, it rose by 4.64 percent compared to the previous quarter.
As to the activity of the government and private sectors, growth rate of the private sector’s NDP at current prices stood at 7.94 percent in 2006 compared to 7.84 percent in 2005. The growth rate of the government sector’s NDP stood at 3.43 percent in 2006 against 12.51 percent in 2005.
Government expenditure increased by 13.5 percent in 2006 compared to a lower growth rate of 21.48 percent in 2005.
Table 9: Factors Affecting Inflation Rate in the Kingdom
Percentage 2002 2003 2004 2005 2006
% Change
of 1 % Change of 2
st
quarter 07 against 4
nd quarter 07 against 1st quarter 07
th
quarter 06
6.93 18.84 11.61 19.31 2.61
Money Supply (M3) 14.77 4.64
10.06 10.97 21.48 13.52 -
Government expenditure -8.48 -
NDP Growth Rate:
4.66 7.46 7.84 7.94 -
- Private Sector 3.84 -
11.10 10.38 12.51 3.43 - - - Government Sector 1.31
Chart 9 indicates the relationship between monthly and quarterly inflation rates and growth in money supply.
-20.00 -15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00
2nd quarter 3rd quarter 4th quarter 1st quarter 2nd quarter Change in money supply (M3)
Price of Arabian light crude Quarterly inflation rate
Chart 9: Comparative Graph for Quarterly Inflation Rate, Growth in Money Supply (M3) and Oil Prices
8- Conclusion
This report reviewed the historical and current performance of inflation rates in the Kingdom according to official data on retail consumer prices (the general cost of living index), wholesale prices (wholesale prices index), as well as at the economy level as a whole (non-oil GDP deflator) and the most important factors affecting inflation rate.
The report has come out with several findings the most important of which are:
Compared with the historical performance of inflation in the preceding five years, there is a general trend indicating increased inflation rates in consumer prices during the last twelve months (from July 2006 to June 2007).
At the macroeconomic level, the marked rise in oil prices during the recent years did not have a significant negative impact (i.e. a rise) on price levels in non-oil sectors of the economy through the indirect impact (Second round effect), whether immediate or with a lag. This is evident in the stability (and even slight decrease) in the GDP deflator of non-oil sector during the last twelve months.
