Experts attributed attributed the causes of inflation in the local market to several factors, most notably excess demand over supply in the real estate sector, increased government spending, rising inflation rates in countries from which the Kingdom imports basic commodities and food, and the decline in the riyal’s exchange rate against international currencies. The experts explained to Al Jazeera that the most significant cause of inflation at present is merchants« excessive exploitation of the aforementioned factors, amid weak commercial legislation, poor regulatory oversight, and the prior classification of goods and services. Musaed Al-Said, an expert on economic cycles, told Al Jazeera that inflation usually has many causes, some of which are related to the domestic market, such as demand outpacing supply. which manifests itself in high demand for real estate and residential units, leading to rising land and housing prices and, consequently, a clear increase in inflation rates. Furthermore, increased government spending on large-scale infrastructure projects leads, both directly and indirectly, to higher inflation rates by injecting billions to implement these projects, bring in labor, and raise wages for a large segment of the workforce. Al-Said added: »The third cause of our inflation is imported and consists of two main factors: rising inflation rates in the countries from which we import basic commodities and food, and the decline in the riyal’s exchange rate against international currencies due to its peg to the dollar.« These factors show us that inflation stems from both domestic and external causes. In my view, any solutions that ignore these causes will not be effective in alleviating inflationary pressures. I believe that the current inflation is natural and logical in a rentier economy like ours, which relies on the export of a single commodity and imports everything else. Economist Hisham Al-Walei, however, explained that the fundamental causes of the current inflation lie primarily in the greed of merchants, who are exploiting these factors to an excessive degree, amid weak trade legislation, weak regulatory oversight, and previous deficiencies in the classification of goods and services—all of which have enabled merchants and importers to inflate prices beyond the actual value of the goods or services provided, although we are currently seeing action by the Ministry of Commerce and Industry to enact legislation and enforce laws that ensure prices are kept within a normal range and are subject to oversight—a process that requires significant effort and more time to address the actual causes of inflation in the economy. He said: »Inflation is defined as the increasing rise in the prices of goods and services, and its causes are diverse and complex. Among the factors leading to domestic inflation are an increase in the money supply and financial burdens resulting from the depreciation of the local currency against foreign currencies. An economic report issued by Jadwa Investment had previously predicted a gradual rise in the inflation rate in the Kingdom during the second half of this year compared to the first half, noting that this steady, slow increase in the housing inflation rate would result from two factors: first, a comparison with previously low levels, and second, strong domestic demand for housing units. The report also projected that the average inflation rate for 2014 would stand at 3% on a year-over-year basis, as data from the Cost of Living Index, released by the General Authority for Statistics and Information, indicated that the inflation rate remained unchanged at 2.7% on a year-over-year basis last June, for the third consecutive month, as the «food» and »housing» remained the main sources of inflation, despite a sudden drop in food prices on a month-over-month basis, while core inflation remained stable in June for the second consecutive month, As for core inflation—a measure estimated by «Jadwa» that excludes prices in the «food» and »housing» categories— remained stable at 2.1% on a year-over-year basis for the second consecutive month last June. Core inflation was also primarily affected by a seasonal increase in the «home furnishings» category during the summer months (4.9% year-over-year), which accounts for 9.1 % of the cost-of-living index’s weight. Food inflation, which constitutes 21.7 % of the cost-of-living index, rose by 2.8% year-over-year in June, adding 0.67 percentage points to headline inflation.
Source: Al-Jazeera Newspaper
