Saudi inflation rate decelerates as impact of VAT increase fades

Web DeskWeb Editor

16th Aug, 2021. 12:50 pm
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RIYADH/MOSCOW: Inflation rate in Saudi Arabia decelerated in July from June on an annual basis, as the effects of the July 2020 tripling of the VAT rate no longer weigh on spending, Arab News reported.

The consumer price index, a gauge used to detect the changes in prices, recorded a modest increase of 0.4 per cent in July, compared with the same month a year ago, but this increase is a sharp drop from the annual rate of 6.2 per cent recorded in June, the data from the General Authority for Statistics (Gastat) showed. 

The sharp fall in the annual inflation reflects the diminishing impact of the increase in VAT from 5 per cent to 15 per cent that significantly affected the consumer price index levels starting from July 2020, the authority said on its website.

The July consumer price index; however, rose 0.2 per cent month-on-month, Gastat said. Growth in monthly prices in July was driven mainly by the 0.5 per cent increase in the prices for food and beverages and the 1.4 per cent increase in the prices for education.

The outlook for inflation and prices for the remainder of the year is more stable.

In its inflation report published on August 8, 2021, the Saudi Monetary Agency said: “The inflation rate is expected to remain stable at its lowest levels during the current quarter, compared with the previous quarter, as a result of King Salman’s directive to fix the ceiling of the price of gasoline 91 at 2.18 riyals, and gasoline 95 at 2.33 riyals.”

The Riyadh-based Jadwa Investment said in a note on inflation this month that the prices in the second-half of 2021 were expected to continue rising on a monthly basis as a result of “global inflationary pressures and higher local demand in the kingdom in the second-half of 2021”.

“As a result, we have maintained our inflation forecast for [the] full-year 2021 at 3.7 per cent and 1.5 per cent for [the] full-year 2022,” Jadwa added.

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