Tuesday, 24 May, 2022
E-paper

Saudi Arabia’s inflation rate to hit 2.4pc in 2022: Jadwa

Saudi Arabia’s inflation rate to hit 2.4pc in 2022: Jadwa

Popular News

Saudi Arabia's inflation rate for 2022 has been revised upwards to 2.4 per cent, from 1.7 per cent previously, driven by a global rise in food prices triggered by the Russia-Ukraine war, Jadwa Investments said.

The kingdom, which imported about 45 per cent of its wheat from Russia and Ukraine last year, recorded a 40 per cent rise in the cost of buying wheat so far in 2022, the investment bank said in a new report. Food and beverage prices in the kingdom rose an average 2.4 per cent annually in February compared with a 2 per cent rise in January, report agencies.

"Looking ahead, we expect further rises in global food prices, as a result of the Russian-Ukrainian conflict, to put upward pressure on food prices locally," Jadwa said.

"Higher consumption of food and beverages traditionally observed during the holy month of Ramadan is likely to add to food-related price pressure locally, albeit temporarily."

Russia and Ukraine are major players in the agricultural commodity markets, accounting for 53 per cent of the global trade of sunflower oil and seeds trade, and 27 per cent of wheat trade, according to a report by the United Nations Conference on Trade and Development. International food and feed prices could rise by up to 22 per cent as a result of the continuing conflict and the ensuing supply gap, the UN's Food and Agriculture Organisation (FAO) said last month.

Its Food Price Index, which tracks the international prices of items such as vegetable oils and dairy products, reached an all-time high of 140.7 points in February, up nearly 4 per cent from January, and rising 24 per cent on an annual basis.

As Ukraine's ports remain closed and much of Russia's grain supply is barred by western sanctions, there are rising concerns that tightening supplies will lead to shortages in importing countries. The upward revision of Saudi Arabia's inflation forecast also comes amid other global and regional developments.

Covid-19 lockdowns in China are starting to pressure already strained global supply chains, leading to higher imports costs from key trading partners such as Saudi Arabia, Jadwa said. About 20 per cent of the kingdom’s imports are shipped from China. Nearly half of the Asian country's exports are produced in areas that currently have Covid-19 lockdowns, the bank said.

"Due to the current round of lockdowns and a continued implementation of a zero-tolerance of Covid-19 cases in China, we now see this as an upside risk to local prices," Jadwa said. However, with the US Federal Reserve raising interest rates by 25 basis points recently and indicating an aggressive path to further rate increases during the remainder of the year, Jadwa expects the value of the dollar (and therefore the Saudi riyal) to rise, "which should help insulate the kingdom’s import costs somewhat during the year", it said.