Saudi Arabia’s inflation jumps 6.1 percent following VAT tax hike

Saudi Arabia’s consumer price index jumped 6.1 percent in July compared with a year earlier, boosted by a tripling of value-added tax, official data showed on Sunday.

The inflation rate in June was 0.5 percent, the smallest annual increase since January, before the VAT increase to 15 percent from 5 percent came into effect on July 1.

The jump in annual inflation reflected price increases in most categories, the General Authority for Statistics said. Food and transport were major contributors, rising by 14.6 percent and 7.3 percent respectively.

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Jason Tuvey, senior emerging markets economist at Capital Economics, said in a research note that “the pass-through from the VAT hike may be relatively more limited compared with when the tax was first introduced in 2018. Even so, we expect Saudi inflation to jump to 5.5-6.0 percent year on year this month and remain around this level for much of the next year.”

Saudi Arabia, the world’s biggest oil exporter, said in May that it would triple VAT as it sought to shore up finances hit by the twin shock of low oil prices and the coronavirus pandemic.

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