RIYADH: Saudi inflation rose for a second straight month as the consumer price index hit 5.7 percent.
Prices rose 5.3 percent the previous month according to data from the General Authority for Statistics.
The pickup in inflation highlighted the continuing impact of higher value added tax (VAT) which was increased to 15 percent in July 2020 from 5 percent before.
Transport prices also increased by 19.3 percent, led by the rising cost of buying a vehicle.
However food and beverage prices were the main driver in the rising cost of living, rising by 7.3 percent. Food represents a weighting of 17 percent in the Saudi consumer basket that economists use to measure the cost of living in the country. “In particular, the increase in the prices of meat (6.8 percent) and vegetables (6.7 percent) was remarkable. Food prices were the main driver of the inflation rate in May 2021,” the authority said in a statement.
Food prices are accelerating across the Arab world with Egypt this week also reporting a pick-up in inflation to 4.8 percent year-on-year in May, up from 4.1 percent the previous month. It comes as the United Nations Food Agency predicts a double-digit spike in global food import costs this year.
“Looking ahead, the headline inflation rate is likely to peak in June at around 6.3 percent year-on-year,” James Swanston, Middle East and North Africa Economist at London-based Capital Economics, said in a research note.
“But, from July, inflation will drop sharply as the base effects of the tripling of the VAT rate last year drop out of the annual price comparison. We think that the headline rate will slow to around 1.0-1.5 percent year-on-year and remain at this pace over the course of this year and throughout 2022-23,” he added. At the same time, the Wholesale Price Index (WPI), which surveys the pre-retail prices of 343 items, rose 17.5 percent in May, mainly on the back of a surge in the price of chemicals and refined petroleum products and the ongoing impact of VAT.
The WPI reported that basic chemicals prices rose 38.4 percent year-on-year, refined petroleum products rose 29.9 percent and the price of metal products, machinery and equipment grew by 18.1 percent, spurred on by a 35.6 percent surge in the price of basic metals over the last year.