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Saudi Arabia: Inflation in Q3 2018 on the rise

It seems that Saudi’s aptly named “Saudization” plan is bringing about some short-term drawbacks. New data by the government has revealed rising inflation rates in Q3 2018.

VAT to blame for inflation?

According to a report by business site Mubasher Info, the Saudi Arabian Monetary Authority (SAMA) has forecast that inflation would rise in the year’s third quarter, as a result of economic reforms.

In its quarterly inflation report, SAMA has attributed this rise in prices to several factors, namely: The newly introduced 5% VAT at the start of the year, recovering oil prices, and the increasing fees imposed on expats and their dependents, as well as businesses hiring expats.

After the immediate onset of VAT in January, official data by Saudi revealed that inflation spiked to 3%.

“In a research note sent to the media in July, BMI Research – part of the Fitch Group – said inflation has so far averaged 2.7% from January to May this year, compared to an average deflation rate of 0.9% for the whole of 2017,” Zawya reported last month.

Subsidy cuts led to a rise in transportation costs, while VAT mostly led to the inflated prices of food and beverages, BMI Research’s report discovered.

Mubasher continued by saying that Saudi Arabia’s inflation rose to 2.3% on an annual basis in Q2-18, although on a quarter-on-quarter basis, inflation was down 0.5%, SAMA’s previous data showed.

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Expat fees on the rise

Expat fees are a major culprit in this sudden burst of inflation.

Last year, expatriates working in the private sector began paying a family tax of $26.6 (SR 100) per month for every minor or unemployed relative living in the Kingdom, the Saudi general directorate of passports said in a statement. The tax is expected to increase every year until 2020, when it will max out at $1280 (SR 4,800) per dependent annually. Currently, the monthly tax is $53.30 (SR 200) per dependent.

Currently, companies employing more foreign nationals than Saudi nationals have to pay a monthly fee of $160 (SAR 600) per foreign national employee – $133 (SAR 500) for companies employing more Saudi nationals – PwC reports.

According to government data, more than 667,000 foreigners have left the country since the beginning of 2017 due to these new taxes.

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Hajj and rising oil prices push prices up

As with any period of great inbound tourism, such as the current hajj (pilgrimage) season, prices will naturally go up as demand for products and services increases.

According to the UK’s Express, 2017 saw almost 2.5 million pilgrims. The country’s record was achieved in 2012, with more than 3 million pilgrims traveling to the Kingdom.

With the recovery of oil prices and the aforementioned cut to subsidies, transportation costs in the Kingdom have consequently risen.

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