Inflation in Saudi Arabia to average 3.1% in 2018, says Jadwa

Inflation in Saudi Arabia will average around 3.1 percent this year due to expected higher imported inflation, and higher costs borne by local food and agriculture companies, Jadwa Investment reiterated in a recent report.

Since the start of the year, prices rose by an average of 2.8 percent year-to-April due to the introduction of the value-added tax (VAT) and utility and fuel price reform since Jan.1, it added.

However, the latest General Authority for Statistics (GaStat) inflation release for April showed that though prices rose by 2.6 percent year-on-year (YoY), it declined by 0.2 percent month-on-month (MoM).

Food and beverages prices rose by 5.7 percent YoY in April but declined by 0.9 percent MoM for the second time in a row.

"Despite the fact that this year saw the implementation of VAT, we still expect to see higher inflation rates and consumer spending during May and June 2018, especially on food items," the consultancy noted.

Housing and utilities prices rose slightly by 0.5 percent, despite a spike in fuel prices in January, but rentals for housing has been showing "negative" growth rates since July 2017.

Meanwhile, annual growth in POS sales have rebounded since it declined in January, as the average year-to-date rise was at 13 percent, compared to 7 percent in the same period last year.

"We see this rebound as a positive outcome of the Citizen’s Account, and the royal decree ordering a monthly payment of SAR 1,000 to public sector employees during 2018, which was implemented to help citizens cope with inflationary pressures," Jadwa said.

Additionally, the increase in POS sales could also be attributed to SAMA’s recent initiative to encourage using point of sales instead of cash transactions.

Despite the challenges surrounding the inflation rates, Jadwa believes that the Citizen’s Account and the inflation allowance to public sector employees during 2018, should "continue helping citizens cope with inflationary pressures over the course of year."