Saudi Arabia has once again demonstrated its exceptional ability to manage and control inflation, setting itself apart from other Arab and foreign countries. Despite the significant challenges faced by the global economy in 2022, Saudi Arabia successfully maintained an impressively low inflation rate of 2.6 percent, placing it among the nations with the lowest inflation levels worldwide.
Success in figures
The latest data from the General Authority for Statistics (GASTAT) reveals that Saudi Arabia’s annual inflation continued to decelerate in 2023, reaching a 23-month low of 1.5 percent in December, down from 1.7 percent in November. These figures are in line with expectations and indicate a positive trend. In October 2023, the inflation rate in Saudi Arabia was 1.6 percent, representing a decline compared to the same month the previous year. September 2023 had an annual inflation rate of 1.7 percent.
#GASTAT publishes the Wholesale Price Index, December 2023.
— الهيئة العامة للإحصاء (@Stats_Saudi) January 15, 2024
Economists at Capital Economics had previously projected that annual inflation in the Kingdom would decrease to 1.6 percent by December, with a further drop to one percent year-on-year anticipated by mid-2024. Although they foresee a minor obstacle to this trend in the latter half of the year, they believe it will be temporary, and inflation will continue to slow down as 2025 approaches.
Global inflation can be attributed to a variety of factors, including disruptions in supply chains, escalating food and oil prices, the wider repercussions of the Russo-Ukrainian war, and the containment measures implemented in China to address the COVID-19 pandemic.
Read more: Inflation in Saudi Arabia eases to 1.5 percent: GASTAT
Inflation forecast for 2024
According to the World Economic Outlook, Saudi Arabia ranked second lowest in terms of inflation rate among the G20 countries in 2023. China had the lowest inflation rate with 0.7 percent in 2023, and it is projected to increase to 1.7 percent in 2024. Also, the G20 countries consist of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Turkey, South Korea, the United Kingdom, and the United States.
Additionally, in the 2024 budget’s introductory statement, the Saudi Ministry of Finance presented initial projections indicating that the consumer price index for the entire year of 2023 was around 2.6 percent. The Ministry highlighted that Saudi Arabia’s inflation rates remained reasonable compared to both developed and developing nations. This accomplishment was credited to proactive measures and policies implemented by the government to manage increasing prices, including measures such as setting a cap on gasoline prices, bolstering food reserves, and supporting social protection programs.
Resilience to global inflationary pressures
Despite the high global inflation rates and the tightening of monetary policies by central banks in several countries, which involved raising interest rates to mitigate overall price level increases, Saudi Arabia has been able to maintain relatively controlled inflation rates. Moreover, these global inflationary pressures were driven by disruptions in global supply chains, resulting in higher prices for commodities and logistics on a global scale.
The Ministry reassured that Saudi Arabia’s inflation rate would continue to remain at relatively acceptable levels in the medium term. It also projected a decrease in inflation rates to 2.2 percent in 2024, slightly higher than the forecasted rate of 2.1 percent for 2025.
Financial measures to curb inflation
Saudi Arabia’s success in reversing inflation can be attributed to a series of measures implemented by the Kingdom to safeguard the economy. The key measures are outlined below:
- Stabilizing energy prices: Saudi Arabia has proactively set price limits on certain petroleum derivatives, effectively containing inflation and mitigating the impact of price increases.
- Strengthening support and social subsidies: The Kingdom has provided additional support to social security beneficiaries, implemented programs like the Citizen’s Account Program and the Small Livestock Breeders Support Program, and allocated resources to increase strategic commodity reserves. These measures have addressed the consequences of rising global prices.
- Oil revenues: Saudi Arabia has benefitted from the growth in oil revenues from its exports, particularly with the global increase in oil prices exceeding $100 per barrel in 2022.
- Diversification of food import sources: Saudi Arabia, along with other Gulf countries, has leveraged the diverse range of food importers. While GCC countries import 90 percent of their food requirements, sourcing food products from Asia and Africa has helped mitigate the impact of disruptions in cereal supplies from Russia and Ukraine.
- Adjusting interest rates: The Gulf countries, led by Saudi Arabia, have not hesitated to raise interest rates in response to rate hikes by the U.S. Federal Reserve to counter inflationary pressures.
- Promoting localization efforts: Saudi Arabia has made significant efforts to localize promising industries, diversify exports, and increase the domestic content of non-oil sectors. This includes signing agreements, knowledge transfer partnerships, and strategic cooperation with various entities. Non-oil activities have achieved year-on-year growth of 3.5 percent and quarter-on-quarter growth of 0.4 percent.
Other measures
- Diversifying exports and reducing reliance on high-priced imports: The Kingdom aims to replace imports with domestically produced goods, reducing dependence on costly imports from other countries.
- Reducing taxes and fees: Saudi Arabia has lowered taxes and fees that do not contribute value to the economy or encourage domestic and foreign investment. These measures have resulted in a significant increase in foreign investment, reaching SAR347 billion ($92.52 billion) by the end of 2022, a 300 percent jump compared to 2018.
- Revitalizing tourism and industrial sectors: Saudi Arabia has focused on revitalizing the tourism and industrial sectors, attracting foreign investment and stimulating economic growth.
Final word
Taking into account the factors mentioned above, the wise leadership in Saudi Arabia outperformed its Gulf counterparts in effectively managing inflation rates. Will Saudi Arabia succeed in completely eliminating inflation by 2025?
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