Dubai: A plunge in Saudi Arabia’s inflation rate, to its lowest level in more than 10 years, is good news for the kingdom’s efforts to reduce a huge state budget deficit without stifling economic growth.
Annual consumer price inflation slowed to 1.7 per cent in December from 2.3 per cent in November, the Central Department of Statistics reported on Monday. On a month-on-month basis inflation was negative, with prices dropping 0.5 per cent.
Much of the decline was due to lower food prices, which fell 4.3 per cent from a year earlier. The desert kingdom imports many basic foods; its costs were reduced by soft global food prices and the Saudi riyal’s peg to the US dollar, which has been strong globally.
Riyadh hiked domestic fuel and utility prices in December 2015 to cut a $98 billion budget deficit produced by low oil prices. That caused inflation to almost double in the following month to 4.3 per cent, its highest level since 2012, squeezing the incomes of Saudi consumers and slowing the economy further.
The leap in inflation threatened a political backlash which could have made the government more cautious about introducing additional austerity measures. The latest data suggests that threat has largely subsided.
“In the first half of last year, inflation caused a considerable erosion of household incomes and people’s ability to pay for things — the data shows this has eased,” said Jason Tuvey, Middle East analyst at London-based Capital Economics.
