Saudi Arabia sees deflation for first time in over a decade

Saudi Arabia’s inflation rate for January fell into negative territory for the first time in over 10 years, new figures from the kingdom’s General Authority for Statistics (GAS) showed Tuesday.

Data showed that the consumer price index (CPI) at -0.4 percent for January 2017. The cost of living index recorded a decrease of 136.5 points last month compared to 137.1 points in the same month last year.

“Consumer prices in Saudi Arabia fell in year-on-year terms in January as food prices continued to decline at a steep pace and the effects of last year’s subsidy cuts dropped out of the annual comparison,” said Jason Tuvey, Middle East economist at Capital Economics

However, the period of deflation is likely to prove short-lived going forward, he noted.

“For one thing, domestic demand appears to be recovering which will boost underlying price pressures. The decline in food prices should also reverse course and fresh subsidy cuts are likely in the middle of the year once the new ‘household allowance’ has been introduced,” he added.

Food & beverages dragged the index down by -4.2 percent, followed by transport (-3.1 percent), recreation and culture (-2.2 percent) and restaurants and hotels (-1.1 percent).

Meanwhile, tobacco saw the biggest price hike of 19.9 percent YoY, followed by communications at 2.8 percent.