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Tue 21 Feb 2017 04:50 PM

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Saudi Arabia sees first deflation for more than a decade

Inflation turns negative in Gulf kingdom in January as food and transport prices fall

Saudi Arabia sees first deflation for more than a decade

Inflation turned negative in Saudi Arabia for the first time in more than a decade in January, according to data released by the country's Central Department of Statistics.

The figures showed that prices fell by 0.4 percent last month compared to a rise of more than four percent in January 2016.

The falls were partly due to the weakness of the Saudi economy, where low oil prices have slashed the government's export revenues and forced it to cut spending.

Food and beverage prices fell 4.2 percent from a year earlier, partly because of the strong US dollar, to which the Saudi riyal is pegged.   

Prices of housing and utilities rose 1.2 percent and transport costs fell 3.1 percent, with inflation in bothcategories down sharply compared to rates in previous months.

The government raised prices of domestic fuel and utilities around the end of 2015, and the changes dropped out of calculations this month.

Earlier this month, Jadwa Investment forecast a return to deflation in January for the first time since 2005.

Pressure for prices to rise is expected to increase within months, however. The government plans another round of fuel price increases in mid-2017 and has said it will impose a 50 percent tax on soft drinks and a 100 percent levy on tobacco and energy drinks in the second quarter of this year.

The government plans to raise fees for foreigners' work permits and their dependents' visas, starting this year, and intends to introduce a 5 percent value-added tax in the first quarter of next year.

* With Reuters

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