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Wed 26 Sep 2018 01:55 PM

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Saudi inflation forecast to rise over remainder of 2018

Capital Economics says underlying price pressures in Saudi Arabia are likely to pick up over the rest of this year

Saudi inflation forecast to rise over remainder of 2018

Saudi inflation was unchanged between July and August but is expected to rise over the rest of this year as underlying price pressures pick up, according to analysts Capital Economics.

Jason Tuvey, senior emerging markets economist, made the prediction after new figures showed consumer prices in Saudi Arabia rose by 2.2 percent year-on-year in August.

That was unchanged from July with Tuvey saying in a research note that inflation remained below its recent peak of 3 percent in January, when the introduction of a new value-added tax (VAT) and a raft of administered price hikes caused inflation to spike.

The breakdown of the data showed that price pressures across the major price categories were broadly the same in August as they were in July.

Food inflation – which accounts for around 20 percent of the country's consumer price index basket – edged down last month, from 6.7 percent to 6.6 percent.

Clothing inflation fell deeper into negative territory, taking it below its recent trough in April, said Tuvey who added that restaurants and hotels inflation hit a fresh five-year high, rising from 7.6 percent in July to 8.4 percent in August compared to the year-earlier period.

Tuvey noted: "Looking ahead, we expect that inflation will edge higher over the  remainder of this year as stronger  economic growth fuels underlying price pressures. That said, headline inflation will decline at the start of 2019 as the effects of the new VAT and administered price hikes fall out of the annual comparison.

"While further subsidy cuts are likely to be announced next year, they will probably be less aggressive than those imposed this year. The upshot is that we expect that inflation will fall to around 1 percent year-on-year in January 2019."

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