Jadwa revises down 2018 Saudi inflation forecast to 2.6%

Jadwa Investment has revised its inflation rate forecast for 2018 to average around 2.6 percent, down from 3.1 percent previously, mainly due to the decline in rentals for housing prices, the investment banks said in a report on Monday.

Since the start of the year, prices have risen by an average of 2.5 percent year-to-August, despite the introduction of the value-added tax (VAT) and utility and fuel price reform at the turn of the year.

“Despite the fact that this year saw the implementation of VAT, we see that the impact of the slowdown in the housing sector, affected by the declining ‘rentals for housing’ has weighed on the overall inflation rate,” the report noted.

Noting that the housing sector carried a weight of 25.3 percent in the updated CPI basket, the report said the slowdown in the housing sector comes mainly from the decline in housing rental prices, which has remained in the negative territory since July 2017.

In 2019, Jadwa expects inflation rates to average around 1.1 percent, “as prices are expected to continue the downward trend in the short term, to adjust with VAT and the structural reforms in the labor market”.