Rent and energy price rises keep Saudi inflation at 2.7%

Reuters/Ahmed Yosri

• The latest consumer price index shows an 8% hike in housing costs
• Apartment rents in Saudi Arabia are up 22% year-on-year
• Food and drink prices are up 1%, but the price of milk has risen sharply

Saudi Arabia’s annual inflation rate stood at 2.7 percent in April, driven mainly by a 9.6 percent hike in residential rents, plus rises in other housing costs and in hotel and restaurant prices.

Away from restaurants, food and beverage prices were up by just over 1 percent year-on-year, according to the General Authority for Statistics. This increase was mostly down to a 10.9 percent jump for milk, dairy products and eggs.

Rents play a significant role in the rate in part because of their weighting in the Saudi consumer basket: they make up 20.97 percent of the total. The wider housing costs category makes up 25.50 percent, compared to food and drink at 18.78 percent.

Rents for apartments have increased particularly sharply: up 22.2 percent year-on-year.

The headline inflation rate also stood at 2.7 percent in March, slowing from 3 percent in February.

However, it was 2.3 percent in April 2022, meaning the kingdom’s inflation has risen in line with global trends.

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.

Saudi's real GDP is forecast to grow by 3.1 percent this year and by the same figure in 2024. It grew by 8.7 percent in 2022.

A senior banker told AGBI last month that he expected inflation across the Middle East and North Africa to remain “uncomfortably high” for the foreseeable future.

“My prediction would be that inflation will remain quite uncomfortably high,” said John Hardy, head of FX strategy at Saxo Bank.

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.

Hardy added that oil was “the currency for the Middle East” and although prices and income from exports remain high, inflation will be high in the region “just as everywhere”.