Saudi August inflation jumps to 6.2% on VAT increase

The annual inflation rate in July reached 6.1%, jumping from only 0.5% in June before the VAT increase to 15% from 5% came into effect on July 1

  
VAT increase Some growing stacks of coins with the word VAT on them. Image used for illustrative purpose

VAT increase Some growing stacks of coins with the word VAT on them. Image used for illustrative purpose

Getty Images/Photography taken by Mario Gutiérrez.

RIYADH  - Saudi Arabia's consumer price index jumped 6.2% in August compared with the same month last year, the second consecutive rise after a tripling of value-added tax, official data showed on Tuesday.

The annual inflation rate in July reached 6.1%, jumping from only 0.5% in June -- before the VAT increase to 15% from 5% came into effect on July 1.

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

Food and transport were major contributors to the increase, rising by 13.5% and 8.2% respectively. Tobacco prices jumped 13% while prices at restaurants and hotels rose 7.7% from their level a year ago, the General Authority for Statistics said.

"Inflation has clearly been distorted by the tripling of VAT. This is still working its way through the economy, and although month-on-month inflation was quite subdued in August (0.2%), we may see further month-on-month gains in September and October," said James Reeve, group chief economist at Samba Financial Group.

While average inflation is set to come in somewhere between 3% and 4% this year, this mainly reflects the weak, non-VAT-affected 2019 base, he said.

"The VAT issue will still be a factor in H1-21, but by the second half of next year I would expect year-on-year inflation to be back around 0.2%," he added.

(Reporting by Marwa Rashad in Riyadh and Youssef Saba in Dubai; Editing by Andrew Heavens and Emelia Sithole-Matarise) ((marwa.rashad@thomsonreuters.com; +966558880260; Reuters Messaging: marwa.rashad.thomsonreuters.com@reuters.net))


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