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Saudi inflation jumps to 6.1% after VAT increase

Saudi Arabia's consumer price index jumped 6.1 per cent in July compared with a year earlier, boosted by a tripling of value-added tax, official data showed on Sunday.
The annual inflation rate in June was 0.5 per cent, the smallest increase since January, before the VAT increase to 15 per cent from five per cent came into effect on July 1.
The jump in annual inflation reflected price increases in most categories, the General Authority for Statistics said. Food and transport were major contributors, rising by 14.6 per cent and 7.3 per cent, respectively.
Saudi Arabia, the world's biggest oil exporter, said in May that it would triple VAT as it sought to shore up finances hit by the twin shock of low oil prices and the coronavirus pandemic.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in a research note that private sector activity is expected to remain soft in the second half of 2020 due to the VAT increase and the impact of higher inflation on consumer spending, compounded by lower government spending and a deterioration in the labour market.
"We estimate that a rise in VAT to 15 per cent would raise some 3.5-4.0 per cent of GDP annually in additional non-oil revenue during normal times and after the initial impact on consumption," Malik said in the note.
"However, we expect the additional revenues to be substantially less in 2020 (c.1.0 per cent of GDP) given the pressure we expect on household spending from Covid-19, the fiscal retrenchment and the half year of implementation."
- Reuters