Saudi Arabia’s implementation of a 5 percent value-added tax (VAT) in January is expected to reflect on the country’s Consumer Price Index (CPI), a report issued by Indosuez Wealth Management said.
CPI dropped around 4 percent in January, and fell 3 percent year-on-year (YoY), negatively affecting households’ purchasing power.
The inflation effect linked to the VAT introduction will likely melt away within the next year, the report said.
Generally, other than the VAT, base effects on the CPI include other factors such as the variations in the currencies rate of exchange, which can also generate significant inflationary impacts.
For Saudi Arabia, however, direct forex impacts on the CPI can be excluded as long as the Saudi Riyal remains pegged to the USD, as it has been since June 1986.
“We do not forecast a termination of the peg for the foreseeable future,” the firm said.
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