KHALEEJ TIMES, Wednesday, Sep 16, 2020 | Muharram 28, 1442
Saudi August inflation jumps to 6.2% on VAT increase
Saudi Arabia's consumer price index jumped 6.2 per cent in August compared
with the same month last year, the second consecutive rise after a tripling
of value-added tax, official data showed on Tuesday.
The annual inflation rate in July reached 6.1 per cent, jumping from only
0.5 per cent in June - before the VAT increase to 15 per cent from 5 per
cent came into effect on July 1.
Saudi Arabia, the world's biggest oil exporter, said in May it would triple
VAT as it sought to shore up finances hit by the twin shock of low oil
prices and the coronavirus pandemic.
Food and transport were major contributors to the increase, rising by 13.5
per cent and 8.2 per cent respectively. Tobacco prices jumped 13 per cent
while prices at restaurants and hotels rose 7.7 per cent from their level a
year ago, the General Authority for Statistics said.
"Inflation has clearly been distorted by the tripling of VAT. This is still
working its way through the economy, and although month-on-month inflation
was quite subdued in August (0.2 per cent), we may see further
month-on-month gains in September and October," said James Reeve, group
chief economist at Samba Financial Group.
While average inflation is set to come in somewhere between 3 per cent and 4
per cent this year, this mainly reflects the weak, non-VAT-affected 2019
base, he said.
"The VAT issue will still be a factor in H1-21, but by the second half of
next year I would expect year-on-year inflation to be back around 0.2 per
cent," he added.