The annual rate of consumer inflation in Saudi Arabia has averaged 3.3 percent in the year through November 2021, according to data compiled by Arab News. 

However, several organizations expect it to be in the lower range of 1-2 percent next year.

The 3.3 percent rate is exactly where the indicator was seen during the same period a year ago, so the yearly inflation rate for full year 2021 is set not to differ significantly from the full year average of 3.4 percent in 2020.  

It’s interesting to note that in the first half of last year annual inflation stood at a much lower level than in the second half. On the other hand, the situation was reversed this year.

Such a difference resulted from the hike in the value-added tax starting from July 2020 as the general consumer price index surged to 104 from 98 in June 2020. 

As a result, the annual rate of inflation jumped to 6.1 percent in July 2020 from 0.5 percent in June 2020. It then accelerated to 5.8 percent in the second half of 2020, up from 1.1 percent in the first half.

Accordingly, the base effect of VAT introduction started to fade starting from July 2021.

This has led to the average annual inflation rate for the period from July through November 2021 falling sharply to 1.7 percent compared to 5.5 percent in the first half of this year.

In line with this, several organisations have outlined their expectations for the changes in consumer prices next year, with almost all of them predicting inflation to be in the range of 1-2 percent.

“The risks to inflation lie to the downside”, Capital Economics, a London-based research firm, said in a note issued Nov. 15.

“While the finance minister recently pushed back against expectations for a cut to the VAT rate, the longer that oil prices stay high the more likely such a policy will be pursued,” the firm’s analysts said.

The firm does not expect Saudi inflation to rise to “the very strong rates seen in other parts of the emerging world” and projects it to remain within a range of 1-2 percent in 2022-23.

Similarly, Jadwa, a Saudi investment bank, said that consumer prices are expected to rise by 1.7 percent next year due to inflationary pressures easing off as “the full year effects of higher VAT are fully exhausted.”

However, the firm pointed out that inflation will be attributed to demand in some sectors such as hotels and restaurants, recreation and culture and education.

The Saudi government, Ministry of Finance in particular, forecasts inflation at a level of 1.3 percent in 2022. Additionally, the World Bank and the GCC Statistical Center see it at a level of 2 percent.

Saudi Arabia witnessed a deflation rate of 2.1 percent in 2019 following the 2.5 percent annual growth in 2018.