Saudi Arabia: Inflation soars in January on VAT and fuel price hike

Consumer prices jumped 3.9% from the previous month in January, contrasting December’s 0.1% drop and marking the strongest rise on record. The reading was driven mainly by much higher prices for transport, tobacco and food and beverages. That said, January’s figures reflect the introduction of a 5% value-added tax (VAT) and hiked domestic gasoline prices on 1 January. Conversely, prices for clothing and footwear declined on a monthly basis in January due to sharp discounting by retailers.

Inflation rose to 3.0% in January from 0.4% in December, which was a 16-month high. As a result of January’s strong rise in prices, the annual average variation in consumer prices rose from minus 0.2% in December to minus 0.1%.

Saudi Arabia Inflation Forecast

According to the 2018 budget unveiled in December 2017, the government expects inflation to reach 5.7% in 2018. FocusEconomics Consensus Forecast participants expect inflation to average 3.6% in 2018, which is up 0.2 percentage points from last month’s projection. The panel sees inflation averaging 2.7% in 2019.