Saudi Arabia recently announced that its annualized inflation rate had hit 6.1 percent, causing some to worry that it might be slipping into another phase of double-digit inflation. While those fears are unlikely to be borne out in the near term, Saudi Arabia's undesirably high inflation rate is a symptom of deeper structural problems in its economy, specifically with regard to food and housing.
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Recent reports of an escalation in Saudi Arabia's rate of inflation have raised concerns that the kingdom may be on the verge of careening into another bout of high inflation as it did in the summer of 2008. Saudi inflation reached an all time high that July of 11.1 percent, driven largely by a dizzying rise in global food prices. During the recession the following year, rates moderated to more benign levels, but a recent government report that inflation has reached an annualized rate of 6.1 percent has raised the specter of a return to double-digit inflation.
The prospect of a return to higher inflation in Saudi Arabia is indeed troubling. Yet what is worrying about the recent inflation report is not that it portends a probable return to double-digit inflation-in fact this is unlikely. Rather, it is another data point along a long-term trend line that demonstrates that Saudi Arabia may have reached a structurally higher level of inflation.
High inflation in Saudi Arabia is less an illness in and of itself than it is a symptom of deeper underlying economic tensions that result from poor public policy. Specifically, the inflationary trend is being driven by escalating food prices and housing rents, both of which are caused by supply bottlenecks and economic inefficiencies. To cure inflation in the long run, Saudi Arabia's leaders must address these maladies first.
There are some who would counter that inflation must be tackled head on. In 2008, a number of economists argued that monetary factors were largely responsible for the kingdom's inflation, specifically the Saudi riyal's peg to the US dollar. To maintain the currency peg of 3.75 riyals to the dollar the Saudi Arabian Monetary Authority (SAMA) must keep domestic interest rates closely tied to US rates. As the US Fed cut interest rates beginning in 2007, SAMA was forced to follow in lockstep so as to prevent creating upward pressure on the riyal. However, at the time the Saudi economy was already overheating and economists argued that the untimely loosening of monetary policy exacerbated already rising inflation.
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A second factor cited as linking the currency peg to inflation is the relative weakness of the US dollar to other major currencies, which drags down the value of the riyal as well. In 2009, Saudi Arabia received 22 percent of its imports from the Eurozone and these goods (as well as others from Great Britain, Japan and elsewhere) become more expensive when the riyal's value weakens.
Most of Western society views the issue of women in the workforce and women's rights as a non-issue. It has been tackled in the past and women, in general, are treated with equal respect as with a man. That is true; at least in western and more developed countries. In other parts of the world that still abide by patriarchal and oppressive laws of society; women are still treated like properties, incubators and nannies for the babies. Their full potential to become productive members of society is not fully realized because of the lack of education and the pressures of tradition.