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

Saudi Consumer Prices (Sep.)

Middle East Data Response
Written by Jason Tuvey

Saudi inflation dropped back to 5.7% y/y in September as food inflation eased and schools slashed tuition fees ahead of the new academic year. While the effects of July’s VAT hike will keep inflation elevated until the middle of next year, weak domestic demand is likely to dampen underlying price pressures.

Food and education drag inflation down

  • Saudi inflation dropped back to 5.7% y/y in September as food inflation eased and schools slashed tuition fees ahead of the new academic year. While the effects of July’s VAT hike will keep inflation elevated until the middle of next year, weak domestic demand is likely to dampen underlying price pressures.
  • Data released this morning showed that Saudi Arabia’s headline inflation rate declined from a nine-year high of 6.2% y/y in August to 5.7% y/y in September. (See Chart 1.) On a month-on-month basis, which tends to be volatile due to seasonal effects, consumer prices fell by 0.2%.
  • The breakdown of the data showed that the drop in inflation was supported by easing food price pressures. Food inflation slowed for a second consecutive month, from 13.5% y/y in August to 12.6% y/y last month. This directly shaved 0.2%-pts off the headline rate and was driven by falls in meat, seafood and bread and cereals inflation.
  • In addition, there was a sharp decline in education inflation as primary and secondary schools reduced their tuition fees ahead of the new academic year. Education inflation dropped from 1.2% y/y in August to -8.3% y/y, knocking a further 0.3%-pts off the headline rate. Inflation also eased in the housing, furniture, transport and restaurants and hotels price categories. Partially offsetting this were increases in clothing and health 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 and keep inflation elevated until the middle of next year. But as austerity weighs on domestic demand and holds back the economic recovery, underlying price pressures are likely to weaken.

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

Sources: CEIC, General Authority for Statistics

Table 1: Saudi 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

Jun.

-0.3

0.5

6.4

-0.6

-5.2

1.4

-1.1

-2.3

Jul.

5.9

6.1

14.3

0.2

7.3

8.5

5.5

2.2

Aug.

0.2

6.2

13.5

0.2

8.2

8.4

5.3

9.6

Sep.

-0.2

5.7

12.6

0.0

7.8

8.3

6.1

9.5

Sources: CEIC, General Authority for Statistics


Jason Tuvey, Senior Emerging Markets Economist, +44(0) 7885 298 346, jason.tuvey@capitaleconomics.com

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