Saudi Arabia: Inflation continues to accelerate in May
Consumer prices increased 0.18% over the previous month in May, marginally stronger than April’s 0.17% rise. May’s print reflected higher prices for transport, clothing and footwear, and food and beverages.
In May, inflation rose to 5.7% from 5.3% in May. Elevated inflation over the past eleven months has been due to the increase in the value-added tax rate from 5% to 15% back in July 2020. In addition, the stark fall in activity due to the pandemic last year should have also boosted the headline reading. Meanwhile, annual average inflation increased to 5.2% in May, up from 4.8% in the previous month.
Going forward, inflation will likely begin to taper at the end of Q2 2021, as the impact of a low base effect from the tripling of the VAT and recovering economic output begins to fade. Furthermore, some easing of goods shortages as supply chains normalize in H2 this year, thanks to the easing of restrictions both domestically and globally should help temper inflation. That being said, the ongoing economic recovery and relatively higher oil prices will keep inflation upbeat, nonetheless.