The inflationary pressures that have begun to emerge in the local and international economies bring to mind the conditions that prevailed before the 2008 global financial crisis, when inflation in the Saudi economy exceeded 10 percent, and industrial and developing economies suffered from inflation that exceeded the target and central banks were unable to control it. The expectations of economic growth in developing and emerging economies and the decline in growth in industrial countries led to an influx of investments to developing countries to take advantage of the investment opportunities created by economic growth in those countries. Despite the continued recession suffered by industrial countries, economic growth in developing countries in 2010 led to the creation of inflationary pressures on the prices of raw materials. This effect reflects the role that developing countries have begun to play in influencing the global economy and the decline in the role of industrial countries.
During 2010, the prices of raw materials suffered an increase driven by demand in developing countries to meet the economic growth in these countries. The food price index rose by an average of 20 percent during 2010, and the prices of raw materials rose by more than 20 percent on average. Inflationary pressures on prices are expected to continue in 2011, which may have a greater impact on local and global macroeconomic variables. To address this, it is expected that the focus will be on government investment spending and reducing government consumer spending to increase the absorptive capacity of the Saudi economy. It is also important for government agencies to facilitate investment and help encourage investors to increase the absorptive capacity of the Saudi economy. Adopting a more flexible monetary policy will help absorb inflationary pressures due to fiscal policy. Encouraging competition and opening markets to dismantle the monopoly of the few that the Saudi economy suffers from. It is expected that the Competition and Anti-Monopoly Council, which was established more than five years ago and whose members are merchants to protect consumers from the merchants themselves! will play an important role in this. Saudi investment abroad with the encouragement and moral support of the government, and may be a contribution to these projects, without the government being at the forefront to avoid the political effects of this, is important in increasing global supply, especially of agricultural products at the global level to contribute to reducing pressures on prices to rise.
In the Saudi economy, there are three sources of inflationary pressures that are expected to raise the inflation rate in the Saudi economy. Government spending and fiscal policy are the most important sources of inflation in the local economy. The stagnation of development during the past decades due to the decline in oil prices and the huge debts, which exceeded 110 percent of the GDP in the 1990s, led to the disruption of development during the past two decades. With high oil revenues, the Kingdom turned to spending on infrastructure, as well as a clear increase in government consumer spending. Government spending is the most important source of influence on economic growth and inflation in the local economy. Second, due to the rise in the prices of raw materials in the global economy, most of which are imported, the Kingdom will import inflation, and if the decline in the value of the dollar is added to that, which raises the import bill, this constitutes an influential source of pressure on prices domestically to rise. Third, the monopolistic situation and oligopoly by importers, which leads to higher prices than the actual rise in the prices of raw materials and goods in the global economy. The combination of the above factors creates inflationary pressures in the Saudi economy that may push the inflation rate to reach 9 percent before the end of 2011.