RIYADH/MOSCOW: Inflation rate in Saudi Arabia decelerated in July from June on annual basis as the effects of the July 2020 tripling of the VAT rate no longer weigh on spending.

The consumer price index, a gauge used to detect the changes in prices, recorded a modest increase in July of 0.4 percent compared to the same month a year ago, but this increase is a sharp drop from the annual rate recorded in June of 6.2 percent, data from General Authority for Statistics (Gastat) showed.

The sharp fall in annual inflation reflects the diminishing impact of the increase in VAT from 5 percent to 15 percent that significantly affected the consumer price index levels starting from July 2020, the authority said on its website today.

July consumer price index, however, rose 0.2 percent month-on-month, Gastat said. Growth in monthly prices in July was driven mainly by the 0.5 percent increase in prices for food and beverages and the 1.4 percent increase in prices for education.

The outlook for inflation and prices for the remainder of the year is more stable.

In its inflation report published on 8 August 2021, Saudi Monetary Agency said “the inflation rate is expected to remain stable at its lowest levels during the current quarter compared to the previous quarter as a result of King Salman’s directive to fix the ceiling of the price of gasoline 91 at 2.18 riyals, and gasoline 95 at 2.33 riyals.”

Riyadh-based Jadwa Investment said in an note on inflation this month that prices in the second half of 2021 were expected to continue rising on a monthly basis as a result of “global inflationary pressures and higher local demand in the Kingdom in the second half of 2021.”

“As a result, we have maintained our inflation forecast for full-year 2021 at 3.7 percent and 1.5 percent for full-year 2022,” Jadwa added.