DUBAI (Reuters) – Saudi Arabia’s consumer price index jumped to 6.1 percent in July compared to a year ago, official data showed on Sunday, as a result of a three-fold increase in value-added tax.
June’s inflation rate was 0.5 percent, the lowest annual increase since January, before the value-added tax hike to 15 percent from 5 percent beginning July 1.
The General Authority for Statistics attributed the annual jump in inflation to the increase in prices for most categories. Food and transportation were the main contributors, with food increasing by 14.6 percent and transportation by 7.3 percent.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in a research note that private sector activity is expected to remain weak in the second half of 2020 due to the increase in value-added tax and the impact of high inflation on consumer spending, in addition to reduced government spending and a deterioration in the labor market.
“We estimate that increasing the value-added tax to 15 percent will generate about 3.5 to 4 percent of GDP annually, additional non-oil revenues in normal times, after exceeding its initial impact on consumption,” she added.
“Nevertheless, we expect additional revenues to be significantly lower in 2020 (about one percent of GDP), given the pressures we expect on household spending due to Covid-19, fiscal austerity, and only half the year,” she added.