KHALEEJ TIMES, Saturday, Jan 16, 2021 | Jamadi Al Thani 3, 1442
Saudi Arabia 2020 inflation rises to 3.4% after VAT tripled
Saudi Arabia:
Saudi Arabian inflation rose to 3.4 per cent in 2020, lifted by the
tripling of value-added tax last year as the kingdom sought to boost state
revenues hit by the coronavirus crisis and lower oil prices, government data
showed.
The main drivers were prices of food and beverages, which increased by 9 per
cent, and transport, up by 3.8 per cent, the General Authority for Statistics
said on Thursday.
Inflation spiked in the second half of last year due to the VAT hike to 15 per
cent. The rise followed a mild inflation rate in the first part of the year and
a deflationary trend in 2019, when the annual rate was minus 2.1 per cent.
The economy of the world’s largest oil exporter contracted sharply last year,
but data suggests the rate of decline slowed in the third quarter as some
Covid-19 restrictions were lifted.
Business surveys in recent months showed a rebound in economic activity, partly
due to pent up consumer demand, although economists have said the VAT hike has
weighed on the pace of recovery.
“The effects of July’s VAT hike will continue to keep the headline rate elevated
until the middle of this year,” Jason Tuvey, senior emerging markets economist
at Capital Economics, said in a note.
“But as the impact of fiscal austerity weighs on domestic demand and holds back
the economic recovery, underlying price pressures are likely to soften.”
In December, the inflation rate was 5.3 per cent, official data showed, its
weakest reading since the tax hike, with a monthly decline in the inflation pace
of food and beverages offsetting a rise in health inflation.