[30/July/2009]

By: Radhwan Alhamdani

Editor into English by: Tawfiq Alnadhif

SANA'A, July 30 (Saba)- The overall average of inflation in Yemen has fell to 10.5 percent at the end of last May, down from 17.69 percent in last January due to fall down of food and beverages prices in that period.

The overall average of inflation recorded in November 2008 19.09 percent due to the continuous rise in food prices, especially since the beginning of 2008 when the inflation recorded 8.79 percent in January of the same year.

In December 2008, the inflation felt down from 18.98 percent up to 10.5 percent at the end of May 2009.

This decline of inflation rates since the beginning of this year encouraged Yemen Central Bank (YCB) to reduce the interest rate twice on the Yemeni Riyal savings deposited in banks from 13-12 percent and then to 10.5 percent in last May, although the gap is still big between the interest rates on Yemeni Riyal deposits and U.S. dollar deposits.

It could not predict whether this decline will push the YCB to reduce interest rates for the third time in the coming months if the inflation continued to decline until the end of the current fiscal year.

According to the Central Statistics Organization, the rate of core inflation was based on an annual basis decline to 1.36 percent at the end of May, downing from 3.94 percent early this year.

The annual overall average decline of inflation came after the low index of consumer prices from 145.23 percent at the end of April to 144.46 percent at the end of May 2009 due to the low index of food and beverages by 1.10 percent and the index reduction of tobacco, cigarettes and Qat by 0.32 percent, which reflects the monthly inflation rate by 0.53 percent at the end of May2009.

Economic experts said that this decline shows that the consumer price index of food and drinks actually reduces the impact of higher prices for other items.

The Central Statistics Organization data were free of any preliminary data indicate that inflation will continue to decline until the end of 2009, the same pace recorded during the first five months of the same year as it depends on different domestic and global factors and impacts.

The YCB seeks to encourage commercial banks working the country to invest their surpluses by reducing the interest rates to get them in the areas of financial assistance, loans and credit facilities for investment projects and organizations of commodity production to contribute to increasing the supplies of real goods and services and achieving stability in price levels.

It also believes that the reduction in the interest rates would contribute to reducing the funding cost of Yemen's imports of goods and the costs of lending in general, in addition to easing the burden on the public budget of the state of the benefits granted to the Treasury bills used in the funding.

Despite some differences in the assessment of the economic reforms results that were begun by government several years ago, these reforms have produced affirmative results at the level of curbing inflation, stabilizing the exchange rate of the Yemeni currency against other currencies and reducing the budget deficit to the lowest levels.

Saba