Saudi Arabia’s annual consumer price index fell 1.9 per cent in January from a year earlier as housing, water and energy prices all dropped.
Deflation returned to the Middle East’s biggest economy for the first time since 2017. Prices had continued to rise throughout 2018 after the introduction of a value-added tax.
“As the impact of VAT introduction dropped out of the annual data, we had expected inflation to again fall into negative territory,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Underlying factors are a weak domestic demand and the loss of expatriate jobs, which is having an effect on rental prices, Malik said.
Housing, water, electricity and gas prices fell 7.7 per cent in January from a year earlier, the data showed.
The consumer price index dropped 0.3 per cent from December 2018, according to data from the General Authority for Statistics.
Abu Dhabi’s consumer price index also fell, dropping 0.9 per cent from a year earlier, but rose 1 per cent month on month in January, according to government data released on Tuesday.
Buoyed by higher oil prices, the Saudi economy grew 2.2 per cent in 2018, rebounding from a contraction in the previous year. But the outlook for 2019 has been clouded by uncertainty over oil prices.
“A fresh round of subsidy cuts poses an upside risk to the inflation outlook, but with domestic demand likely to remain subdued, we expect underlying price pressures to stay weak,” said Jason Turvey, a regional economist at Capital Economics in London.
After falling sharply in late 2018, crude prices have risen more than 20 per cent this year, helped by supply curbs led by the Organization of the Petroleum Exporting Countries and U.S. sanctions against OPEC members Iran and Venezuela.
The International Monetary Fund expects Saudi Arabia’s economy to grow 1.8 per cent in 2019.