Saudi Arabia’s inflation is expected to stay within the range forecast for this year in 2019, a BMI Research analyst told Zawya after his group issued a research note lowering its estimate for average inflation in the kingdom this year to 2.8 percent – lower than its previous forecast of 3.3 percent issued in April.

In a research note sent to the media earlier this week, BMI Research - part of the Fitch Group - said inflation has so far averaged 2.7 percent from January to May this year, compared to an average deflation rate of 0.9 for the whole of 2017.

The report said the rise in prices during 2018 was mainly driven by the introduction of anew value-added tax (VAT) and subsidy cuts introduced in Saudi Arabia at the start of the year, causing inflation to increase by 3 percent in January, according to official government figures.

Saudi Arabia, the Middle East’s biggest economy, is the world’s top exporter of oil. The kingdom’s economy was badly affected by a sharp drop in oil prices that hit the world in 2014, forcing the kingdom and other oil-importing countries to come up with alternative sources of income. Both Saudi Arabia and the United Arab Emirates implemented a 5 percent VAT on a number of goods and services in January.

“In 2019, we forecast inflation levels to be similar to those seen in 2018, around 2.8 percent, annual average,” Raphaele Auberty, a country risk analyst for the Middle East and Africa region in BMI Research group, told Zawya on Monday in response to questions sent by email.

The BMI Research report said that the kingdom’s subsidy cuts have increased the cost of transportation, while VAT’s impact has mostly been reflected in increased prices of food and beverages.

The kingdom’s most recent inflation data showed that prices rose 2.3 percent year-on-year in May, according to the Saudi Arabian Monetary Authority website. Transportation prices rose 10 percent year-on-year in May, while restaurants and hotel prices increased by 7.1 percent and food and beverages rose by 5.3 percent, according to Reuters. June inflation rates have not yet been released.

(Writing by Yasmine Saleh; Editing by Michael Fahy)

(yasmine.saleh@thomsonreuters.com)

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