#Saudi inflation to remain high until first half of 2021 - Capital Economics | ZAWYA MENA Edition

Saudi inflation to remain high until first half of 2021 - Capital Economics | ZAWYA MENA Edition

Inflation in Saudi Arabia dropped back to 5.3 percent y-o-y in December 2020. But the effect of tripling VAT in July last year will continue to keep the headline rate elevated until the middle of this year, London-based Capital Economics said in a research note.

Saudi Arabia’s headline inflation rate eased from 5.8 percent year-on-year (y/y) in November to 5.3 percent y/y in December, its weakest reading pace since the VAT rate was hiked by 10 percent-points in July last year. On a month-on-month basis, which tends to be volatile due to seasonal effects, consumer prices fell for a second consecutive months, by 0.2 percent.

The breakdown of the data showed that the drop in inflation was fairly broad-based. Of the twelve major price categories, year-on-year inflation fell or was unchanged in seven. Food inflation, which accounts for around 20 percent of the CPI basket, eased from 13 percent y-o-y in November to 12.7 percent y-o-y in December. There were also declines in housing and transport inflation, with the former slipping deeper into negative territory, Capital Economics noted.

Partially offsetting all of this, health inflation hit a two-year high on the back of higher inflation of pharmaceutical products, as well as outpatient and hospital services. There were also modest increases in tobacco, as well as clothing, communications and hotels and restaurants inflation.