Saudi Arabia Inflation Accelerates Most in More Than 3 Years

  • Subsidy cuts to offset oil plunge seen driving inflation surge
  • Consumer prices rose 1.9 percent on the month in January

Inflation in Saudi Arabia accelerated the most in more than three years in January after government subsidy cuts drove up transportation and commodity prices.

Consumer prices rose an annual 4.3 percent, up from 2.3 percent in December, the General Authority for Statistics said on its website. That’s the most on an annual basis since October 2012. Consumer prices went up 1.9 percent on the month, according to the authority.

The surge in inflation “was almost entirely due to the subsidy cuts that were announced alongside the budget,” Jason Tuvey, Middle East economist at Capital Economics in London, said in an e-mailed note. “This goes to underline that the government has taken a bold approach to fiscal consolidation and reinforces our view that the economy is likely to slow sharply this year.”

Oil Prices

Saudi Arabia pared energy subsidies in January after a collapse in oil prices slashed government revenue, forcing officials to draw on reserves and issue bonds for the first time in nearly a decade. A month earlier, they announced that fuel, electricity and water prices would rise as part of a plan to restructure subsidies within five years.

Transportation prices in January went up 12.6 percent from a year earlier, while housing, water, fuel and electricity costs increased 8.3 percent, the statistics authority said. Health care costs increased 5.5 percent.

Annual inflation is forecast to accelerate to 2.7 percent in 2016, compared with 2.2 percent last year, according to the median estimate of 11 economists in a Bloomberg survey.

In attempting to reduce its reliance on oil, the kingdom is seeking to end the population’s dependence on government handouts. Political analysts had considered subsidy cuts risky after the 2011 revolts that swept parts of the Middle East.

Before it's here, it's on the Bloomberg Terminal.