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Value-added tax continues to raise inflation in Saudi Arabia

Inflation in Saudi Arabia

Inflation in Saudi Arabia rose during January by 5.7% compared to January 2020, the Saudi General Authority for Statistics (GASTAT) said.

GASTAT said the inflation price index rose by 5.3% compared to December.

“Noting that consumer prices still reflect an increase of the Value Added Tax (VAT) from (5%) to (15%) in July 2020,” GASTAT said.

Inflation in Saudi Arabia

GASTAT said “the rise of the CPI originated mainly from higher prices of Food and Beverages (+12.3%) and Transport (+9.6%)”.

Food prices were the biggest influence in the increase in inflation in Saudi Arabia in January compared to January 2020.

The prices of meat rose by 14.4% and Vegetables by 18.2. “Food prices were the main driver of inflation in Saudi Arabiarate in January 2021,” GASTAT said.

“Tobacco prices recorded an increase by (12.0%) due to the rise of prices of Cigarettes by (+11.6%).”

The monthly inflation index was affected by the rise in the transportation division by 2%. This, in turn was affected by the increase in the operating prices of personal transport equipment by 5.5%.

“Communication prices increased by (+1.6%), influenced by a rise in telephone and fax services by (+2.3%).”

Inflation in Saudi Arabia recorded 104 points in January 2021, compared to 103.77 in December 2020. They recorded 98.37 points in January 2020.

Economic downturn

Previous government data showed that the Saudi economy shrank 4.2% in the third quarter of 2020 compared to a year ago. This is a smaller contraction compared to the second quarter when the economy was hit hard by the Coronavirus  crisis.

GASTAT said the seasonally adjusted gross domestic product (GDP) grew by 1.2% in the third quarter compared to the second quarter of 2020.

“It was expected that there will be a sequential recovery in economic activity in the third quarter after easing the lockdown measures and taking into account the pent-up demand,” said Monica Malik, chief economist at the UAE’s Abu Dhabi Commercial Bank.

“However, the pace of recovery would have been weakened by the increase in the value-added tax rate,” she said.

Saudi Arabia, the world’s largest oil exporter, tripled the value-added tax last July, to 15%.

The country seeks to support the financial conditions affected by the double hit of low oil prices and the Coronavirus pandemic.

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