GCC: Overall, inflation will remain in check in the region

5 min

Consumer price inflation has remained subdued to moderate in the GCC region YTD. Both Saudi Arabia and the UAE have seen an increase in annual inflation rates after they imposed a 5% VAT at the start of this year. Inflation in the UAE rose to just below 4% (3.8% y/y in July as well as on average in January-July), as expected. In Saudi Arabia, the increase has been more modest, with inflation posting 2.3% y/y in August, taking the average consumer price growth to 2.5% YTD. Inflation varied across sectors, with transportation (10.3% y/y YTD) and foodstuff (6.1%) recording strong rises, while it was subdued in household equipment (0.4%) and utilities (0%), and negative in clothing (-8.1%). In Bahrain, annual inflation has picked up to 2.7% on average YTD due to the implementation of excise taxes on tobacco, energy drinks and soft drinks at the end of 2017. Elsewhere in the region, in Qatar, Kuwait and Oman, inflation has remained below 1% on average YTD. But these countries along with Bahrain are expected to impose a 5% VAT in 2019 which should result in higher inflation.