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Saudi August inflation jumps to 6.2% on VAT increase

Filed on September 15, 2020
Saudi Arabia's average inflation is set to come in somewhere between 3 per cent and 4 per cent this year. - Reuters

The annual inflation rate in July reached 6.1 per cent.

Saudi Arabia's consumer price index jumped 6.2 per cent in August compared with the same month last year, the second consecutive rise after a tripling of value-added tax, official data showed on Tuesday.

The annual inflation rate in July reached 6.1 per cent, jumping from only 0.5 per cent in June - before the VAT increase to 15 per cent from 5 per cent came into effect on July 1.

Saudi Arabia, the world's biggest oil exporter, said in May it would triple VAT as it sought to shore up finances hit by the twin shock of low oil prices and the coronavirus pandemic.

Food and transport were major contributors to the increase, rising by 13.5 per cent and 8.2 per cent respectively. Tobacco prices jumped 13 per cent while prices at restaurants and hotels rose 7.7 per cent from their level a year ago, the General Authority for Statistics said.

"Inflation has clearly been distorted by the tripling of VAT. This is still working its way through the economy, and although month-on-month inflation was quite subdued in August (0.2 per cent), we may see further month-on-month gains in September and October," said James Reeve, group chief economist at Samba Financial Group.

While average inflation is set to come in somewhere between 3 per cent and 4 per cent this year, this mainly reflects the weak, non-VAT-affected 2019 base, he said.

"The VAT issue will still be a factor in H1-21, but by the second half of next year I would expect year-on-year inflation to be back around 0.2 per cent," he added. - Reuters


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