Inflation Report
First Quarter 2009
Table of Contents
1. Introduction 3
2. Inflation Trends During the Past Six Years 3
3. The Level of Current Performance of Inflation Indicators in the Kingdom 4
3.1 All Cities Cost of Living Index 4
3.2 Wholesale Price Index 5
3.3 GDP Deflator 5
4. Geographical Distribution of Inflation Rate in the Kingdom 6
5. Inflation and Foreign Trade with Major Trading Partners of the Kingdom 9 6. Indicators of the General Trend and Fluctuation in Inflation Rates 9
7. Factors Affecting Inflation Rate 10
8. Inflation Expectations for the Second Quarter of 2009 12
9. Conclusion 14
---List of Tables and Charts ---
Table 1: Change in the General Cost of Living Index and its Major Groups
Table 2: Comparison of Inflation Rates in Some Countries
Table 3: Quarterly and Annual Cost of Living Indices up to the End of the First Quarter of 2009 (1999 = 100) Table 4: Quarterly and Annual Wholesale Price Indices up to the End of the First Quarter of 2009 (1999 = 100) Table 5: Nominal GDP Growth and Annual Rate of Change in the Deflator
Table 6: Cost of Living Indices by City
Table 7: Sources of the Kingdom’s Imports and Inflation Rates
Table 8: Descriptive Statistics of Monthly Inflation Rates
Table 9: Descriptive Statistics of Quarterly Inflation Rates: First Quarter 2004 - First Quarter 2009
Table 10: Most Significant Factors Affecting Inflation Rate in the Kingdom
Chart 1: Comparison between Inflation Levels during the year ending March 2009 and those During the Preceding Five Years.
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 2004-2008
Chart 5: Change in the General Index in the First Quarter of 2009 Compared to the Fourth Quarter of 2008 Chart 6: Change in the General Index in the First Quarter of 2009 Compared to the First Quarter of 2008
Chart 7: General Trend of Quarterly Inflation Rates
Chart 9: Comparison of Quarterly Inflation Rate, Growth in Money Supply (M3) and Change in Oil prices
1. Introduction
Inflation (the continuous rise in the general level of prices) is a phenomenon which goes in line with economic growth. In the last five years (excluding the fourth quarter of 2008 and the first quarter of 2009), many countries have registered noticeable rates of inflation at an accelerating pace due to a number of factors, including increased economic activity, high prices of primary goods and increased shipping charges worldwide as well as a high level of employment, especially in emerging economies.
In general, the factors causing inflation in an economy vary from factors related to international environment, such as trends of commodity prices, the activity of the global economy and developments of international financial markets, to 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 in addition to seasonal factors.
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 general level of prices for the economy as a whole.
2. Inflation Trends during the Past Six Years The average inflation rate (moving average) as measured by annual changes in the cost of living indices during the year ending by March 2009 rose by 9.5 percent while the average inflation rate during the preceding five years (April 2003– March 2008) was 1.6 percent. During the year from April 2008 to March 2009, inflation rates by groups of goods and services exceeded their levels recorded in the preceding five years. The group of renovation, rent, fuel and water (housing and appurtenances) rose by 18.0 percent, the group of food and beverages 12.5 percent, the group of home furniture 9.7 percent, the group of goods and other services 8.5 percent, the group of medical care 3.5 percent, the group of education and entertainment 2.1 percent, the group of fabrics, apparel and shoes 1.0 percent, and the group of transport and telecommunications 0.8 percent (Table 1 and Chart 1).
Chart 1 compares the average level of inflation during the year ending by March 2009 with that during the preceding five years. Points on the left of Line 45°
(in the positive side of the chart) indicate higher average inflation during the year ending by March 2009 compared to the average of the preceding five years (the opposite in the negative side).
As Table 2 shows, the average inflation rate in the Kingdom is still low compared to the average rate of GCC countries and some other countries.
Weights (Relative Importance)
( % )
——————————
——————————
—————————
9.5 2.0
100 General Index
12.5 4.6
26 Foodstuffs & beverages
1.0 -1.5
8 Fabrics, Clothing & footwear
18.0 2.6
18 Renovation, rent, fuel & water
9.7 0.2
11 Home furniture
3.5 1.6
2 Medical care
0.8 -1.7
16 Transport & telecommu-nication
2.1 0.1
6 Education & entertainment
8.5 4.1
13 Other goods & services
Average Index for the Period Apr 2003 -Mar 2008
Average Index for the Period Apr 2008 -Mar 2009 Table 1 : Change in the General Cost of Living Index and its Major Groups (% )
Source: Central Department of Statistics and Information.
3. The Level of 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. The index includes 406 goods and services compiled on a monthly basis for sixteen cities. Table (3) shows all cities’ cost of living indexes, quarterly and annual rates of change up to the end of the first quarter of 2009.
Table (3) shows that the average cost of living index for the base year (1999=100) registered an increase of 0.6 percent in the first quarter of 2009 compared to the fourth quarter of 2008. This increase is attributed to rises in the group of renovation, rent, fuel and water by 3.4 percent, the group of other goods by 2.7 percent, and the group of transport and telecommunication by 0.6 percent. The group of food and beverages declined by 1.8 percent, the group of home furniture by 0.4 percent, and the group of apparel and clothing by 0.1 percent, whereas the group of
General Index
Food and Beverages
Fabrics, apparel &
shoes
Renovation, rent, fuel and water
Housing Furniture
Mdical care Transport &
telecommunication
Education &
entertainment
Other Goods &
Services
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0
-4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0
Average Index for the Period Apr 2008 -Mar 2009
Average Index for the Period Apr 2003 -Mar 2008
Chart 1 : Comparison between Inflation Levels during the Twelve Months Ended Mar 2009 and Those During the Preceding Five Years.
Average 2008
2007 2006
2005 2004
Country
———
———
———
———
———
———
————
4.5 3.0 3.4
2.2 2.6
2.3 Bahrain
5.7 5.4 3.6
4.2 6.9
6.6 Brazil
3.7 6.4
4.8 1.5
1.8 3.9
China
8.8 11.7
11.0 4.2
8.8 8.1
Egypt
5.7 7.9
6.4 6.2
4.2 3.8
India
6.9 15.8
5.4 6.3
3.5 3.4
Jordan
9.0 4.6 5.5
3.1 4.1
1.3 Kuwait
4.6 11.2
5.9 3.4
1.9 0.7
Oman
11.2 15.0
13.8 11.8
8.8 6.8
Qatar
3.4 9.9
4.1 2.2
0.6 0.4
Saudi Arabia
9.1 10.5
8.8 9.6
8.2 8.6
Turkey
12.9 8.9 11.1
9.3 6.2
5.0 United Arab Emirates
19.5 27.2
18.7 13.7
16.0 21.7
Venezuela
Table 2: Comparison of Inflation rate in some countries (Annual percent change)
Source: International Monetary Fund, World Economic Outlook Database, Oct 2008, except Saudi Arabia, source:
Central Department of Statistics and Information.
education and entertainment and the group of medical care remained unchanged.
Data in Table (3) and Chart (2) indicate an increase of 6.9 percent in the average* Cost of Living index in the period ended in the first quarter of 2009 compared to the corresponding period of the previous year. This increase was attributable to rises in the group of renovation, rent and fuel by 16.9 percent, the group of food and beverages by 5.1 percent, the group of home furniture by 12.3 percent, the group of goods and other services by 3.5 percent, and the group of medical care by 1.3 percent.
3.2 Wholesale Price Index
The index measures wholesale prices. It represents a basket containing 160 items sold on primary markets in the Kingdom. Table (4) and Chart (3) shows quarterly and annual wholesale price indices up to the end of the first quarter of 2009. The table indicates that the wholesale price index during 2008
* It is worth mentioning that the average here is for the first quarter of 2009 against that for the first quarter of 2008, and it differs from the average inflation rate (moving average) indicated in section 2 of this report.
was 144.7 against 132.7 during 2007, increasing by 9.0 percent.
The general wholesale price index recorded a decline of 1.6 percent during the first quarter of 2009 compared to the fourth quarter of 2008 basically due to a drop in the groups of chemicals and related products by 9.7 percent, raw materials (except fuel) by 4.9 percent, manufactured goods classified by substance by 1.5 percent, food and live animals by 1.3 percent, animal and vegetable oils and fats by 1.1 percent, and machinery and transport equipment by 1.1 percent. In contrast, three groups recorded various increases. Other commodities rose by 10.8 percent, miscellaneous manufactured articles by 0.6 percent, and beverages and tobacco by 0.4 percent.
3.3 GDP Deflator
This deflator measures the prices of commodities, which are produced domestically, through the deflator of oil sector, non-oil sector and
% Change
% Change
(Q1 2009/
Q1 2008) (Q1 2009/
Q4 2008) Q1
2009 Q4
2008 Q3
2008 Q2
2008 Q1
2008 2008
2007
————
—————
—————
———
———
———
———
———
———
———
—————————
9.9 6.9
0.6 120.7
120.0 117.8
115.2 112.9
116.5 106.0
General Index
14.1 5.1
-1.8 139.2
141.8 138.1
135.5 132.5
137.0 120.1
Food and Beverages
0.3 1.4
-0.1 86.5
86.5 86.1
85.6 85.3
85.9 85.6
Fabrics, Apparel and Shoes
17.5 16.9
3.4 139.9
135.2 131.8
126.4 119.6
128.3 109.2
Renovation, Rent, Fuel and Water
7.6 12.3
-0.4 111.8
112.3 102.5
100.8 99.6
103.8 96.4
House Furnishing
5.0 1.3
0.0 113.0
113.0 113.0
112.0 111.6
112.4 107.0
Medical Care
0.2 2.1
0.6 89.7
89.1 88.7
87.7 87.8
88.3 88.1
Transport and Telecommunications
2.1 1.7
0.0 102.2
102.1 101.1
100.3 100.4
101.0 98.9
Education and Entertainment
10.7 3.5
2.7 136.0
132.5 137.1
133.2 131.4
133.6 120.7
Goods and other Services
Source: Central Department of Statistics and Information
————————————————
——————
Annual
Averages Quarterly Indices
Table 3: Quarterly and Annual Cost of Living Indices up to the End of the First Quarter of 2009 1999 = 100
Groups of
Goods and Services
Change of Annual
Average 2008
GDP. The non-oil deflator reflects domestic inflation by excluding change in crude oil prices. Table (5) and Chart (4) show the deflator and the growth rate of the annual GDP from 2004 to 2008, in addition to the rate of change in the general cost of living index. The non- oil deflator registered an increase of 2.5 percent in 2008 compared to 1.2 percent during 2007.
4. Geographical Distribution of Inflation Rate in the Kingdom
The general cost of living index (for all cities) registered a rise of 0.6 percent to 120.7 in the first quarter of 2009 compared to the fourth quarter of the preceding year. Four cities (Al-Dammam, Riyadh, Jeddah, and Sakaka) have recorded higher rates than the 112.9
115.2
117.8
120.0 120.7
108 110 112 114 116 118 120 122
1st Q.
2008
2nd Q.
2008
3rd Q.
2008
4th Q.
2008
1st Q.
2009 Chart 2: Quarterly Developments in
the General Cost of Living Index
% Change
% Change
(Q1 2009/
Q1 2008) (Q1 2009/
Q4 2008) Q1
2009 Q4
2008 Q3
2008 Q2
2008 Q1
2008 2008
2007
————
—————
—————
———
———
———
———
———
———
———
—————————
9.0 -2.5
-1.6 138.4
140.6 149.3
147.0 141.9
144.7 132.7
General Index
9.2 3.3
-1.3 161.6
163.7 162.1
160.1 156.4
160.6 147.1
Food & Live Animals
1.5 1.5
0.4 132.7
132.2 132.2
131.3 130.7
131.6 129.7
Beverages &
Tobacco
0.0 -11.2
-4.9 174.1
183.1 197.8
197.8 196.0
193.7 193.6
Crude Materials (except fuel)
0.0 0.0
0.0 184.8
184.8 184.8
184.8 184.8
184.8 184.8
Mineral Fuels &
related products
12.6 8.3
-1.1 137.6
139.2 133.9
132.9 127.0
133.3 118.3
Vegetable Oils &
Fats
14.0 -33.5
-9.7 123.7
137.0 204.3
186.0 186.1
178.4 156.4
Chemicals & Related Products
12.6 -0.5
-1.5 134.1
136.2 149.0
148.3 134.8
142.1 126.2
Manufactured Goods classified by substance
6.3 -0.6
-1.1 124.8
126.2 127.8
127.6 125.6
126.8 119.3
Machinery &
Transport Equipment
13.2 3.0
0.6 121.9
121.2 121.9
121.0 118.3
120.6 106.5
Msc. Manufactured Articles
18.5 -2.5
10.8 182.2
164.5 166.9
172.3 186.8
172.6 145.7
Other Commodities
Source: Central Department of Statistics and Information.
————————————————
——————
Groups of
Goods and Services
Table 4: Quarterly and Annual Wholesale Price Indices up to the End of the First Quarter of 2009 1988 = 100
Annual
Averages Change
of Annual Average
2008 Quarterly Indices
rate of change in the general cost of living index. The remaining cities, however, recorded lower rates than the rate of change in the general index (Table 6 and Chart 5).
The general cost of living index (all cities) registered an annual rise of 6.9 percent in the first quarter of 2009 compared to the first quarter of the preceding year. Five cities (Riyadh, Jeddah, Ta'if, Al Dammam and Jazan) recorded annual rises higher than the rate of change in the general index, while Al Hufuf registered an inflation rate equal to the general inflation rate. The rest of the cities, however, recorded lower inflation rates than the rate of change in the general index (Table 6 and Chart 6).
Growth Rate of Non-oil GDP Deflator
(100 = 1999) Years
————————————
————————————
—————————————
————
0.3 3.8
2004 16.7
0.7 4.1
2005 26.1
2.2 3.7
2006 13.0
4.1 1.2
2007 7.7
9.9 2.5
2008* 22.1
Source: Central Department of Statistics and Inflation.
* Preliminary data.
Growth Rate of GDP at Current Prices
Rate of Change in the Annual General Cost of Living Index Table 5 : Nominal GDP growth and Annual Rate of Change in the Deflator
141.9
147.0
149.3
140.6
138.4
132 134 136 138 140 142 144 146 148 150 152
1st Q.
2008
2ndQ.
2008
3rdQ.
2008
4thQ.
2008
1stQ.
2009 Chart 3: Quarterly Developments in
the Wholesale Price Index
0.0 5.0 10.0 15.0 20.0 25.0 30.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0
2004 2005 2006 2007 **2008
Chart 4 : Annual Change in the Non-oil GDP Deflator during 2004-2008*
Growth Rate of Non-oil GDP Deflator Rate of Change in the Annual General Cost of Living Index Growth Rate of GDP at Current Prices
* The right axis above shows the growth rate of GDP. ** Provisional data.
0.8 0.6
-0.4 0.8
-0.1 -0.4 -1.1 1.4
0.2 0.5 0.2 0.1
0.5
-0.1 -0.3 0.9 0.5
-1.6 -0.8 0.0 0.8 1.6
General Index (All cities)
Riyadh
Makkah
Jeddah
Ta'if
Al-Madinah
Buraydah
Al-Dammam
Al-Hufuf
AbhaTabuk
Ha'il
Jazan
Najran
Al-Baha
Sakaka
Ar'ar
Chart 5: Change in the General Index in the1st Quarter of 2009 Compared to the 4th Quarter of 2008
Annual Change*
Quarterly Change First
Quarter Fourth
Quarter Third
Quarter Second
Quarter First
Quarter
(% ) (% )
2009 2008
2008 2008
2008
———
———
———
———
———
———
———
6.9 0.6
120.7 120.0
117.8 115.2
112.9 General Index (All cities)
7.3 0.8
123.5 122.6
120.2 118.2
115.1 Riyadh
5.8 -0.4
116.0 116.4
115.2 112.3
109.6 Makkah
7.5 0.8
119.5 118.5
115.7 113.7
111.1 Jeddah
7.6 -0.1
124.1 124.2
123.2 115.1
115.3 Ta'if
5.1 -0.4
112.8 113.2
111.0 108.4
107.4 Al-Madinah
4.7 -1.1
121.6 123.0
120.7 117.7
116.2 Buraydah
8.5 1.4
125.3 123.6
121.3 118.1
115.5 Al-Dammam
6.9 0.5
122.0 121.4
117.6 115.7
114.1 Al-Hufuf
5.8 0.2
116.0 115.7
114.0 111.7
109.7 Abha
4.5 0.1
117.9 117.8
116.4 113.3
112.8 Tabuk
5.8 0.2
123.7 123.5
122.5 119.7
116.9 Ha'il
7.1 0.5
119.5 119.0
116.1 113.2
111.6 Jazan
4.5 -0.3
120.8 121.2
120.8 117.1
115.6 Najran
4.9 -0.1
120.5 120.7
118.2 117.2
114.9 Al-Baha
5.7 0.9
110.6 109.5
107.2 106.1
104.6 Sakaka
4.9 0.5
108.9 108.3
105.8 104.8
103.8 Ar'ar
Table 6: Cost of Living Indices by Cities
* Comparison between 1st quarter of 2009 and 1st quarter of 2008.
Source: Central Department of Statistics and Information.
5. Inflation and Foreign Trade with Major Trading Partners of the Kingdom
The Saudi economy is an open-market economy which is reflected by data of foreign trade with 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 causes the domestic inflation rate to be affected by change in the prices of goods in the country of origin. Table (7) shows the values of the Kingdom’s imports from major trading partners during 2008.
The United States is the largest trading partner of the Kingdom though there was a decline in the relative share of imports from USA during 2008 to 13.7 percent from 19.3 percent in 2000. Imports from the US amounted to Rls 59.1 billion during 2008 against Rls 21.8 billion in 2000, rising by 171.1 percent. Figures indicate that the rate of inflation in the USA increased to 3.8 percent during 2008 compared to 3.4 percent in 2000.
The Kingdom’s imports from some Euro zone countries, went up from Germany by 249.7 percent to Rls 32.0 billion compared to 2000, from Italy by 268.0 percent to Rls 17.3 billion, from France by 226.1 percent to Rls 15.2 billion, and from other countries by 329.4 percent to Rls 133.7 billion.
Table 7 shows an increase in the inflation rate in the People's Republic of China from 0.4 percent in
2000 to 6.4 percent in 2008, and a rise in the share of its exports to the Kingdom from 4.0 percent in 2000 to 11.0 percent or Rls 47.5 billion in 2008. It is also noticed that India's share of exports to the Kingdom rose from 2.8 percent in 2000 to 4.2 percent or Rls 18.0 billion in 2008. Inflation rate in India rose from 4.0 percent in 2000 to 7.9 percent in 2008. Table 7 indicates that with the increase in the volume of imports to the Kingdom over the years under study, the percentage share of imports from emerging economies, such as China, South Korea and India, increased as well; these countries were characterized by higher inflationary pressures, especially during the last three years. Projections of IMF (World Economic Outlook, Apr. 2009) indicate higher inflation rates in the Kingdom's trading partners during 2008 compared to 2007, which were reflected on the price level of commodity imports to the Kingdom in the preceding year.
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 in making decisions related to public 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 volatility in the inflation rates in the Kingdom (according to the general cost of living index).
7.3 6.9 5.8 7.6 7.5
4.7 5.1 8.5 6.9 5.8 4.5 5.8 7.1 4.9 4.5
4.9 5.7
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
General Index (All cities)
Riyadh
Makkah
Jeddah
Ta'if
Al-Madinah
Buraydah
Al-Dammam
Al-Hufuf
AbhaTabuk
Ha'il
Jazan
Najran
Al-Baha
Sakaka
Ar'ar
Chart 6: Change in the General Index in the 1st Quarter of 2009 Compared to the1st Quarter of 2008
Tables (8 and 9) provide descriptive statistics on monthly inflation rates for the year ending in March 2009 and for the last five years (April 2003 to March 2008), as well as statistics for quarterly inflation rates during the period from the first quarter of 2004 to the first quarter of 2009. The average quarterly inflation rate amounted to 3.6 percent for the general index with a standard deviation of 3.6 and range (the difference between the maximum and the minimum values) was 10.6.
Most of the volatility in the quarterly inflation rates during the period from the first quarter of 2004 to the first quarter of 2009 was accounted for by the group of food and beverages (average = 6.4 with a standard deviation = 4.2 and range = 13.4), the group of goods and other services (average = 5.3 with a standard deviation = 4.0 and range = 13.0), the group of renovation, rent, fuel and water (average = 5.8 with a standard deviation = 7.3 and range = 20.2) and the group of medical care (average = 2.2 with a standard deviation = 2.5 and range = 7.8).
Charts (7 and 8) below show inflation performance (quarterly in the first and monthly in the second) and its general trend measured by the moving average of inflation rate (each four quarters for the quarterly, and each 12 months for the monthly), which has recently indicated a downward trend in inflationary pressures.
7. Factors Affecting Inflation Rate
Many factors play a 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 (10) shows the relative changes of the most significant domestic factors affecting the inflation rate in the Kingdom. These factors are concentrated in the demand side, resulting from an increase in the government and private expenditure, and its effect on the level of liquidity. Broad money supply (M3) increased slightly by 17.6 percent in 2008, compared to 19.3 percent in the preceding year. In the first quarter of 2009, it rose by 3.9 percent compared to the fourth quarter of 2008, recording an annual rise of 15.8
2008 2007
2000 2008
2000 2008
2000
———
———
———
———
———
———
———
—————
3.8 2.9
3.4 13.7
19.3 59107
21802 United States
1.4 0.0
-0.8 8.2
10.5 35251
11837 Japan
6.4 4.8
0.4 11.0
4.0 47541
Republic of China 4485
3.6 2.3
0.9 3.5
6.5 15225
United Kingdom 7308
4.8 2.5
2.3 4.5
3.4 19218
South Korea 3846
7.9 6.4
4.0 4.2
2.8 18012
India 3132
4.4 2.3
4.5 2.1
2.6 9274
Australia 2907
3.3 2.1
2.2 21.9
23.7 94430
26787 Euro Zone Countries
of which :
2.8 2.3
1.4 7.4
8.1 32047
Germany 9164
3.5 2.0
2.6 4.0
4.1 17288
Italy 4698
3.2 1.6
1.8 3.5
4.1 15244
France 4675
31.0 27.5
133695 31136
Other countries
431753 113240
Total
*: World Economic Outlook Database, Apr. 2009
Source: Central Department of Statistics and Information, and IMF.
—————————
Table 7: Sources of the Kingdom’s Imports and Inflation Rates
Imports (Million Riyals) (% ) Share of Imports Inflation Rate (% )
Country ————————— ——————————————
Goods and other Services Education
and Entertain-
ment Transport
and Telecomm-
unication Medical
Care House
Furnishing Renovation
Rent, Fuel and Water Fabrics,
Apparel and Shoes Food and
Beverages General
Index
———
———
———
———
———
———
———
———
———
3.7 0.0
-1.8 1.3
0.0 1.9
-1.5 4.3
Average 2.0
2.6 -0.1
-1.3 0.4
0.0 0.1
-1.7 3.7
Median 1.1
3.0 0.6
2.1 1.9
1.1 3.6
1.0 1.9
Standard Deviation 2.2
10.3 1.7
1.6 6.5
2.5 12.5
0.4 9.4
Maximum Amount 9.6
-0.2 -1.0
-5.4 -0.2
-2.0 -1.4
-3.5 1.6
Minimum Amount 0.0
10.5 2.7
7.0 6.7
4.5 13.8
3.9 7.7
Range 9.6
8.5 2.1
0.8 3.5
9.7 18.0
1.0 12.5
Average 9.5
9.2 1.9
0.4 2.5
9.9 18.1
1.3 15.2
Median 10.4
4.6 0.6
1.0 2.5
4.0 0.9
0.7 4.8
Standard Deviation 1.7
14.7 3.2
2.5 7.7
14.7 19.8
1.8 16.0
Maximum Amount 11.1
2.0 1.5
-0.3 1.3
4.5 16.8
-0.6 2.8
Minimum Amount 6.0
12.7 1.7
2.9 6.4
10.2 3.0
2.3 13.2
Range 5.1
Apr 2008- Mar 2009 Apr 2003- Mar 2008
Table 8: Descriptive Statistics for Monthly Inflation Rates
* A month against a corresponding month in the preceding year.
(%) Monthly Inflation Rates per Group*
Goods and other Education
and Entertainm Transport
and Telecomm- Medical
Care House
Furnishing Renovation
Rent, Fuel and Water Fabrics,
Apparel and Shoes Food and
Beverages General
Index
———
———
———
———
———
———
———
———
———
5.3 0.5
-1.2 2.2
2.0 5.8
-1.2 6.4
Average 3.6
4.5 0.3
-0.8 1.3
0.8 1.2
-1.6 5.2
Median 2.3
4.0 1.0
2.0 2.5
4.1 7.3
1.3 4.2
Standard Deviation 3.6
12.9 3.1
2.2 7.6
14.4 18.9
1.6 15.8
Maximum Amount 10.8
0.0 -0.8
-5.3 -0.2
-1.9 -1.3
-3.1 2.4
Minimum Amount 0.2
13.0 3.9
7.5 7.8
16.3 20.2
4.7 13.4
Range 10.6
1st Quarter 2004- 1st Quarter 2009
(%) Quarterly Inflation Rates per Group
Table 9: Descriptive Statistics for Quarterly Inflation Rates: First Quarter 2004- First Quarter 2009
percent in the year ending in the first quarter of 2009 compared to 23.0 percent in the year ending in the first quarter of the preceding year.
As for the activity of the private and public sectors, the growth rate of the private sector’s GDP at current prices stood at 8.7 percent in 2008 while the growth rate of the public sector's GDP was at 3.6 percent during the same year.
Chart 9 indicates the relationship between quarterly inflation rates, growth in money supply and change in oil prices.
8. Inflation Projections for the Second Quarter of 2009
The inflation rate in the Saudi economy continued its downward trend over the past two
quarters as from the fourth quarter of 2008. The quarterly inflation rate went down from 2.2 percent in the third quarter of 2008 to 1.9 percent in the fourth quarter of 2008, then to 0.6 percent in first quarter of 2009. Following the same trend, the annual inflation rate declined from 10.7 percent at the end of the year ending in the third quarter of 2008 to 9.9 percent at the end of the year ending in the fourth quarter of 2008, then to 6.9 percent in the year ending in the first quarter of 2009.
As the global economy is currently witnessing a state of recession, the deepest since World War 2, there is a general trend indicating a continued decline in inflation in the Saudi economy during the second quarter of 2009. According to many economic indicators, there is a general trend suggesting a -0.4
-0.10.20.50.81.11.41.72.02.32.62.93.23.5
Chart 7 : The General Trend in Quarterly Inflation Rates
Moving Average 4 Quarters Quarterly Inflation Rate of the General Index (%)
-0.7-0.5 -0.20.00.20.50.70.91.11.41.61.8
Chart 8 : The General Trend in Monthly Inflation Rates
Moving Average 12 Months Monthly Inflation Rate of the General Index (%)
continued decrease in the prices of construction inputs such as steel and cement, the prices of foodstuffs and the remaining constituents of consumer price basket.
This was due to globally falling prices, rising competition in the domestic market among local importers and producers of many basic services and commodities.
Over the last few months, the positive effect of measures taken by the state at the level of financial, monetary, trade and regulatory polices to control inflation began to materialize clearly. It is noted that there is an expansion in the domestic supply side that started to respond to the increase in the demand side which, along with recent global developments, resulted in further decline in domestic prices in the last two quarters. Its downward trend is expected to continue during the upcoming period.
It is also expected that the private sector’s investment in infrastructure projects, on which work has been in progress for three years, will lead to mitigating pressure on housing rents and contributed to a drop in inflation rates in the Kingdom. Statistics indicate that house building permits went up by 73.4 percent in 1429H compared to 1428H.
Moreover, the inflation rate in the group of food and beverages is expected to continue declining due to decreased prices of commodities and food in the global market and the rise of domestic production of food items. Recent statistics and projections of the IMF denote a fall in prices over the coming period. The price index of non-oil commodities issued by the International Monetary Fund (Bulletin of April 2009) indicates a decline of 31.6 percent in the year ending in March 2009. Among non-oil commodities, prices of
% Change of 1st Quarter 09 Against
1st Quarter 08
% Change of 1st Quarter 09 Against
4thQuarter 08 2008
2007 2006
2005 2004
———————
———————
———
———
———
———
———
15.8 3.9
17.6 19.6
19.3 11.6
18.8 Money Supply (M3)
- 11.5
18.5 13.5
21.5 11.0
Government Expenditure
- 22.1
7.6 13.0
26.1 16.7
NDP Growth Rate:
- 8.7
8.3 7.9
7.8 7.5
- Private Sector
- 3.6
3.1 10.7
12.5 10.4
- Government Sector
Table 10 : Most Significant Factors Affecting the Inflation Rate in the Kingdom
Source: SAMA, Ministry of Finance and Central Department of Statistics and Information
-60 -50 -40 -30 -20 -10 0 10 20 30 40
s t Q . 20 0 d Q . 2 00 8 r d Q . 20 0 t h Q . 20 0 s t Q . 20 0
Chart 9: Comparison of Quarterly Inflation Rates, Growth in Money Supply (M3) and Oil Prices
Change in Money Supply (M3) Change in Price of Arabian Light crude oil Quarerly Inflation Rate
- 4 0 - 3 0 - 2 0 - 1 0 0 1 0 2 0 3 0 4 0
1st Q. 2008 2nd Q. 2008 3rd Q. 2008 4th Q. 2008 1st Q. 2009
food as a whole fell by 24.6 percent and of grain by 31.6 percent. Among grain products, the price of wheat went down by 47.1 percent, barley by 48.0 percent, and coffee by 24.4 percent. The prices of the group of plant oils dropped by 36.2 percent for the same period.
There are some other factors which support the projected price decline in the upcoming period, including the decline in the costs of freight as a result of lower world economic activity, lower oil prices due to a higher exchange rate of the US dollar, which recently witnessed a marked improvement against most foreign currencies. This will have a contributory role in reducing the costs of some imported products in other currencies to the Kingdom. Moreover, the current decline in oil prices could lead to lower costs in agricultural and industrial production inputs which in turn will reduce the costs of agricultural inputs such as fertilizers and intermediate items of industrial products, affecting the level of domestic prices accordingly.
The projections of the IMF (data of April 2009) indicate decreasing in economic growth and inflation rates in most countries during the upcoming period as a result of dropping demand caused by the global financial crisis. Projections indicate a decline in inflation rates in 2009 by -0.9 percent and 0.2 percent
in the US and Euro zone respectively. It is also expected that inflation rates will drop in 2009 in Japan (-0.1 percent), China (0.1 percent), UK (1.5 percent), South Korea (1.7 percent), India (6.3 percent) and Australia (1.6 percent).
All these factors, may influence the prices of commodity imports to the Kingdom, and accordingly the cost of many production inputs in domestic industrial entities is expected to go down, bolstering projections of a continuing decline in prices over the next era.
9. Conclusion
This report has reviewed the historical and current performance of inflation rates in the Kingdom up to the end of the first quarter of 2009, based on the data issued by the Central Department of Statistics and Information on retail consumer prices (the General Cost of Living Index), wholesale prices (wholesale price index), as well as at the economy level as a whole (non- oil GDP deflator) and the most important factors affecting inflation rate. All data show that the general trend indicates a continued decline in the inflation rate during the second quarter of 2009 according to current indexes and future forecasts at both the domestic and international levels ■
