Saudi inflation rate falls to 5.2% in February, lowest since VAT hike in July

Saudi Arabia’s inflation rate fell slightly to 5.2 per cent in February from 5.7 per cent in the prior month, the lowest since the kingdom tripled VAT in July to 15 per cent to boost state coffers hurt by lower oil prices and the coronavirus crisis.

The February rise was again mainly driven by increases in food and beverage prices, which recorded their highest annual increase at 11.2 per cent, the General Authority for Statistics said. Food prices have a weight of 17 per cent in the Saudi consumer basket.

Transport prices increased by 9.8 per cent, mainly due to a 9.9 per cent rise in prices of purchase vehicles.

Annual inflation was 3.4 per cent in 2020, but picked up in the second half of the year after the VAT hike. The first half had seen mild inflation, following a deflationary trend in 2019, when the annual rate was -2.1 per cent.

“We expect the headline rate to rise over the next few months largely due to the unfavourable base effects created by last year’s collapse in oil prices. But the headline rate will drop sharply from July as the effects of last year’s VAT hike drop out of the annual price comparison,” Jason Tuvey, senior emerging markets economist at Capital Economics, said in a note.

The economy of the world’s largest oil exporter contracted last year, but data suggest the rate of decline slowed in the third quarter as some Covid-19 restrictions were lifted, and GDP is expected to return to growth this year.

Some economists scaled back their headline growth forecasts for Saudi Arabia, the largest Arab economy, after Opec and its allies agreed to extend most oil cuts into April, leading to a more gradual increase in Saudi oil production than previously expected. — Reuters