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Saudi industrial production drops as inflation cools

Industrial mining digger Pexels/Enrique
A decline in mining and quarrying resulted in a drop in June's Indsutrial Production Index
  • Inflation fell to 2.3% from 2.7%
  • Housing and utility costs up 8.6%
  • Mining and quarrying down 6.5%

Saudi Arabia’s headline inflation rate dropped for the second month in succession to 2.3 percent in July from 2.7 percent in June, the slowest outturn since the middle of last year.

The main drivers of price increases throughout the month were housing, water, electricity, gas and other fuels, which increased by 8.6 percent year on year.

The cost of food and beverages was up 1.4 percent, according to government data.

The July inflation rate, revealed by Saudi Arabia's General Authority for Statistics (Gastat), continued to fall from the 3.4 percent number reported in January and was below the 3.1 percent previously forecast by Capital Economics.

"Looking ahead, we think that the headline inflation rate will continue to ease over the remainder of this year to 1-1.5 percent year on year and will hover around this rate well into 2024," James Swanston, Middle East and North Africa economist at Capital Economics, said.

Actual rents for housing increased by 10.3 percent across the month. Apartment rents in particular increased by 21 percent.

Rents play a significant role in the rate in part because of their weighting in the Saudi consumer basket: they make up 21 percent of the total. 

The price of housing, water, electricity, gas and other fuels in July increased by 0.3 percent on the previous month, when it recorded a 9.1 percent annual rise.

The cost of food and beverages was up by 0.4 percent on June’s figures, transport prices increased by 0.4 percent and restaurants and hotel prices increased by 0.3 percent month on month.

Saudi Arabia’s Consumer Protection Association regulates prices of essential goods and services, ensuring consumers are not exploited through unwarranted price hikes.

Lessening the impact

The government also runs the Citizen Account Program, which provides cash transfers to low and mid-income families to offset the impact of the increasing cost of living.

“Such measures alleviate the pressure on consumers and contribute to a more stable inflationary environment,” Nikola Kosutic, senior research manager, Euromonitor International, said.

Meanwhile, the kingdom’s Industrial Production Index (IPI) was down 1.6 percent in June 2023 compared with the same month last year, according to Gastat.

“Although the activity of the manufacturing industry and the activity of electricity and gas supply continued to rise, the decline in the mining and quarrying activity during June 2023 led to the decrease in the general index, given its high weight in the index,” the report said.

Mining and quarrying decreased by 6.5 percent year on year as Saudi Arabia decreased its oil production to 9.9 million barrels per day. 

Manufacturing activity increased by 10.1 percent compared to the same month of the previous year. Electricity and gas supplies increased by 25 percent.

Compared with May 2023, the overall IPI increased by 0.5 percent; mining and quarrying stabilised at the level of the previous month; the manufacturing sector decreased by 0.2 percent; and electricity and gas supplies increased by 22 percent.

The International Monetary Fund has raised its 2023 forecast for core inflation to 5.1 percent, saying in April that it had yet to peak in many countries despite lower energy and food prices.

The IMF’s World Economic Outlook predicts that GDP growth in the Gulf will slow this year before picking up pace again in 2024.

Headline inflation across the 16 Mena economies increased on average to 19.4 percent year on year between March and December last year, according to the World Bank. Food inflation rose by an average of 29 percent.