Saudi Arabia inflation eases as VAT rate jump moves closer

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Saudi Arabia’s consumer price index rose 1.1 percent in May from a year earlier, a smaller annual increase than in previous months as food price hikes were offset by declines in prices for items such as housing and transport.

Food prices rose by 7.4 percent year-on-year and were the main driver of the inflation rate in May, the General Authority for Statistics said on Wednesday.

Prices for transport, however, decreased by 3.8 percent year-on- year after Saudi Arabia’s oil giant Aramco lowered domestic gasoline prices.

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“The breakdown of the data showed that food inflation continued to rise, probably due to the effects of stockpiling by households,” said Jason Tuvey, senior emerging markets economist at Capital Economics.

Facing lower state revenues due to a decline in oil prices, Saudi Arabia will triple value-added tax (VAT) to 15 percent starting from July.

Tuvey said he expected inflation to jump on the back of the VAT increase to 5.5 percent-6.0 percent year-on-year in July and to remain around that level for much of the next 12 months.

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