Saudi Inflation Starts to Decline as VAT Impact Lessens

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Saudi Arabia’s inflation rate has started to slowly decline as the impact of value-added tax (VAT) and subsidy cuts introduced at the start of the year begin to lessen.

Consumer prices rose by 2.8 percent year on year in March, according to official statistics released on April 24, compared to a rate of 2.9 percent in February.

Inflation leapt to 3 percent year-on-year in the immediate aftermath of the introduction of a 5 percent VAT charge in January.

The new tax was introduced by the Kingdom in an effort to boost its non-oil revenues as well as narrow its fiscal deficit caused by lower oil revenues. The UAE also introduced VAT in January.

While Saudi households initially struggled with the higher rate of inflation and started cutting back on spending, analysts say public sector bonuses, pledged by the government, will help boost consumer purchasing power.

In January, a royal order outlined a range of bonuses and benefits to be paid out to public sector workers, pension holders, students and members of the military.