Saudi Arabia's plan to control inflation by cutting state spending and reducing money in the financial system may fail as some of the factors contributing to price growth are out of their control, economists said.

Inflation in Saudi Arabia is also caused by a weak dollar, to which the Saudi riyal is pegged, low U.S. interest rates, and the rising cost of food globally, economists from Jadwa Investment Co., EFG-Hermes Holding, Riyad Bank, and Standard Chartered Plc., said Sunday.
The largest Arab economy will pull back on government spending and reduce the amount of money available in the financial system to slow inflation, Hamad Saud al-Sayari, Saudi Arabia's central bank governor, said Saturday after a meeting with counterparts from the other Persian Gulf nations in Riyadh.
A reduction in public spending “might help ease some of the supply bottlenecks that are feeding into inflation, but this is unlikely to be sufficient to prevent an above average period of inflation, much of which has little to do with government spending,” Brad Bourland, chief economist at Jadwa Investment Co., a Saudi Arabia-based investment bank, said in an e-mail Sunday.
Central bank governors from the United Arab Emirates, Kuwait, Qatar, Oman, and Bahrain were also in Riyadh for the twice-yearly meeting to discuss monetary policy.
Inflation in Saudi Arabia may reach a record 4 percent this year, al-Sayari said, up from 3.8 percent in July.
Interest-rate movements in Saudi Arabia are limited by a need to follow the Federal Reserve to maintain the riyal's peg to the dollar.
Saudi Arabia should not slow government spending, Monica Malik, chief economist at EFG-Hermes, said. “Saudi fiscal policy is expansionary and given the needs of the economy, it should be,” she said.
“After years of underinvestment in areas of infrastructure, there should be increased investment.”
The government may “tweak investment levels, but it is unlikely to overhaul them completely, which is what would be required to slow inflation,” Steve Brice, chief Middle East economist at Standard Chartered, said in an e-mail Sunday.
(Source : Bloomberg