Saudi inflation eases to 1.5% – but tipped to rise this year

Reuters/Ahmed Yosri

• CPI was 1.7% in November
• Wholesale prices rising sharply
• Costs not yet passed on

Saudi Arabia’s year-on-year inflation rate eased to 1.5 percent in December 2023, from 1.7 percent the previous month, but prices are expected to rise more quickly this year as the country emerges from a slowdown. 

Housing costs were the main driver of increases in the consumer price index (CPI), according to the General Authority for Statistics. Overall rents rose by 9 percent and apartment rents were up 12.1 percent.

Prices for food and beverages rose by 1.2 percent. Costs dipped for several categories, including clothing, furnishings and household products, and transport. 

While the headline CPI rate has been trending down since January 2023, Saudi Arabia’s wholesale price index has risen sharply since June 2023. Inflation in wholesale prices stood at 3 percent year on year in December.

Prices for transportable goods were up 6.1 percent in December, driven by a 30.9 percent increase in the cost of basic chemicals.

The food products, beverages, tobacco and textiles category was up 3.4 percent. Much of that increase was down to a 14.3 percent rise for dairy products, said the General Authority for Statistics.

Government subsidies baked into food and petrol prices tend to lower price inflation in the wholesale index, but businesses have been reluctant to pass on higher costs over the past year as the Saudi economy slowed.

Riyad Bank, which publishes the Saudi Purchasing Managers’ Index with S&P Global, said rising demand was starting to give non-oil companies “greater confidence to pass on higher input costs to customers”. 

• Larger deficits unlikely to trouble Saudi debt access
• Saudi’s economic rebound to propel GCC growth
• Saudi energy minister: There’s more to us than just oil

Its latest monthly report added: “Selling charges set by Saudi Arabian non-oil firms increased for the second month in a row in December, after a period where pricing strategies had been constrained by growing competition.”

“I would expect to see some uplift in the CPI in the months ahead,” said James Reeve of Jadwa Investment.

The consumer index is based on endpoint prices of 490 goods and services based a 2018 survey of household spending, while the wholesale index has used the pre-retail prices of 343 items since 2014. 

The World Bank said last week that it expects Saudi GDP to grow by 4.1 percent in 2024 and 4.2 percent in 2025, rebounding from a 0.5 percent contraction in 2023 caused by Opec+ output cuts.