Saudi Arabia Consumer Prices (Dec.) - Capital Economics
Middle East & North Africa Economics

Saudi Arabia Consumer Prices (Dec.)

Middle East Data Response
Written by Jason Tuvey

Saudi inflation dropped back to 5.3% y/y in the final month of last year as softer food and housing inflation more than offset a further rise in health inflation to a two-year high. The effects of July’s VAT hike will continue to keep the headline rate elevated until the middle of this year, but we think that weak domestic demand to dampen underlying price pressures.

Inflation eases, but will remain high over first half of 2021

  • Saudi inflation dropped back to 5.3% y/y in the final month of last year as softer food and housing inflation more than offset a further rise in health inflation to a two-year high. The effects of July’s VAT hike will continue to keep the headline rate elevated until the middle of this year, but we think that weak domestic demand to dampen underlying price pressures.
  • Data released this morning showed that Saudi Arabia’s headline inflation rate eased from 5.8% y/y in November to 5.3% y/y in December, its weakest reading pace since the VAT rate was hiked by 10%-pts in July last year. (See Chart 1.) 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%.
  • 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% of the CPI basket, eased from 13.0% y/y in November to 12.7% y/y in December. There were also declines in housing and transport inflation, with the former slipping deeper into negative territory.
  • 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. (See Table 1.)
  • Taking a step back, headline inflation continues to be heavily affected by the effects of the hike in the VAT rate, from 5% to 15%, that came into force at the start of July. This caused inflation to rise by more than 5.5%-pts between June and July and these effects will continue to dominate until the middle of this year. But as the impact of fiscal austerity weighs on domestic demand and holds back the economic recovery, underlying price pressures are likely to soften.

Chart 1: Saudi Arabia Consumer Prices (% y/y)

Sources: CEIC, General Authority for Statistics

Table 1: Saudi Arabia Consumer Prices

Consumer Prices

Food & Bev

Housing

Transport

Furnishings

Clothing

Comm.

% m/m

% y/y

% y/y

% y/y

% y/y

% y/y

% y/y

% y/y

Sep.

-0.2

5.7

12.6

0.0

7.8

8.3

6.1

9.5

Oct.

0.1

5.8

13.0

-0.7

7.0

8.1

6.4

11.4

Nov.

-0.1

5.8

13.0

-0.8

8.0

7.6

6.0

11.1

Dec.

-0.2

5.3

12.7

-1.5

6.9

7.5

6.1

11.4

Sources: CEIC, General Authority for Statistics


Jason Tuvey, Senior Emerging Markets Economist, jason.tuvey@capitaleconomics.com