Saudi inflation eases, but impact of VAT hike to remain into 2021: Economics report

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Jeddah – Yasmine El Tohamy – RIYADH: Inflation in Saudi Arabia dropped back to 5.3 percent year-on-year in the final month of 2020.

Falls in food and housing inflation more than offset a rise in health inflation to a two-year high, according to a report by Capital Economics, a London-based consultancy firm.

Data released on Thursday showed that the Kingdom’s headline inflation rate eased from 5.8 percent year-on-year in November to 5.3 percent in December, the slowest monthly change since value-added tax (VAT) was increased from 5 percent to 15 percent.

“The effects of July’s VAT hike will continue to keep the headline rate elevated until the middle of this year, but we think that weak domestic demand will dampen underlying price pressures,” Jason Tuvey, senior emerging markets economist at Capital Economics, said in the report.

Food inflation, which accounts for around 20 percent of the overall basket, eased slightly from 13 percent year-on-year in November to 12.7 percent year-on-year in December. There were also declines in housing and transport inflation.

Bucking the trend, health inflation hit a two-year peak on the back of higher inflation of pharmaceutical products, as well as increased demand on outpatient and hospital services.

There were also modest increases in tobacco, along with clothing, communications, and hotels and restaurants.

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