Macroeconomic Forecast Saudi Arabia

January 2007 | Macroeconomic Forecasts

Average CPI inflation ticked up to 1.8% y-o-y in 2006, as expected, up from 0.7% in 2005 and 0.3% in 2004. This was largely driven by increases in the prices of foodstuffs and beverages which climbed by 4.9% y-o-y in October, medical care which rose 2.1% y-o-y, and also renovation, rent, water and fuel costs, which was up by 1.5% y-o-y, in the same month. Inflationary pressures will continue to build up in 2007, particularly with the massive budget plan revealed by the authorities that envisages spending rising to SAR380bn, though we forecast, according to historical trends that this figure will be exceeded to reach around SAR417bn. Concerns about inflation (as well as the poor state of the stock market) are largely behind the decision therefore to cancel a 25% rise in regular gasoline prices planned for 2007. However, Inflation in the Kingdom remains one of the lowest in the region given extensive price controls and subsidies - with abundant oil revenues, state finances are strong enough to continue to shoulder this burden.

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