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Running Header: Inflation Rate in Saudi Arabia
Student Name
Instructor’s Name
Course Code
Running Header: Inflation Rate in Saudi Arabia
The inflation rate is the measurement of an increase in goods or service prices over a
given period of time usually annually. However, the economy of the Saudi is one of the most
robust economies in the world and is among the best performing G-20 economies according to
the recent IMF statistics, the Saudi Arabia growth in real Gross Domestic Product (GDP) was
ranked third just after the Republic of China and India’s economy with an anticipated average
annual growth of about 6.25percent since 2008 to 2012 this according to the International
Monetary Growth (IMF) in 2013. During this period, it was also discovered that the public debt
significantly reduced from 37.3 percent of the GDP in 2005 to about 2.7 percent of GDP in 2013.
Inflation in Saudi Arabia is measured using two major ways: First, it is measured through
the Cost of Living Index (CLI) which is composed of a number of products and is based to 1999
index and the second measure is through Wholesale Price Index (WPI). Both of these
measurements are always updated and published by the Central Department of Statistics and
information. The Saudi Arabia Central Bank, SAMA, is guided by key policy of ensuring that it
maintains prices as well as stability in the exchange rates. Under the fixed peg, for instance the
one in Saudi Arabia, the stability in prices is required take in to an account about the exchange
Running Header: Inflation Rate in Saudi Arabia
Saudi Arabia Fiscal and Monetary policy
In Saudi Arabia, the fiscal policies, as well as the monetary policies, plays a critical role
in the economic system. The country has implemented a countercyclical policy in order to
maintain price as well as its financial stability. This policy helps the Saudi Arabia government to
maintain its growth using the fiscal surplus when the oil prices skyrockets, and when the oil
prices go low, the government tries to boost the economy through the fiscal deficit through
financiers by the accumulation of the external surplus when the oil prices were high (Al-Hamidy
The significant increase in oil price from approximately $24 in 2002 to over $100 in 2014
has put the Saudi Arabia economy in the right shape. The public debt ratio to the GDP has
dropped from about 100 percent in 1999 to 3.7 percent in 2012. Government expenditure
increased from about $66.7 billion in 2003 to $246.7 billion in 2014. In addition, given the
managed fixed exchange rate nature in Saudi Arabia, which has pegged its currency at
approximately $3.75, Saudi Monetary Agency (SAMA) has selected an independent monetary
This implies that the Saudi Arabia’s interest rate to limit differential speculation. Due to
this, the inflation targeting is an option for Saudi Arabia because of the fixed exchange rate. In
addition, pegging the Saudi’s Arabia’s riyal with the dollar needs a significant accumulation of
the U.S dollar as a reserve to maintain the fixed exchange rate. This particular reserve requires a
comprehensive increase in the supply chain to be introduced in order to reinforce the currency.
However, the challenge with the monetary expansion is that it creates the possibility of causing
Running Header: Inflation Rate in Saudi Arabia
high inflation in the situation where there is an increase in the money supply gets circulated in
the country’s economy.
However, from this period going forward, the inflation rate has remained relatively high
at an estimated average of 4.17 percent in the period between 2007 and 2013. The problem of
inflation of inflation is often to have intense consequences when it is looked from the main
divisions of living costs point of view. For instance, in the Food and Non-alcoholic beverages
division, the inflation throughout this time, was 6 percent while for housing, water, electricity,
gas as well as other fuels the average annual inflation was about 7.9 percent. And in 2011, and in
the same category, the Saudi Arabia inflation was 11.4 percent (SAMA, 2014).
The table shows the Saudi Arabia inflation rate in 2017 according to the Saudi Arabia
Monetary Authority.
Inflation date
Inflation rate
December 2017
November 2017
October 2017
Sept 2017
July 2017
June 2017
May 2017
Running Header: Inflation Rate in Saudi Arabia
These increases in the cost of living have raised a lot of economic issues from the Saudi
Arabia populace as non-governmental agencies have on the record claiming that the real inflation
rate in the country has been much higher than the anticipated official rate. For instance, a recent
research by one of the Middle East job placement platform established that the cost of living
expenses skyrocketed by 31 percent in 2013 and that wages were experiencing some slow
growth rates compared to the cost of living.
In 2008 the inflation rate in Saudi Arabia was approximately 8 percent. This rate was
discovered to be a little bit high compared to some 10 years back, where the inflation rate was
seen to have significantly dropped to about 0-2 percent and from Saudi Arabia’s history, this was
not the first time the country’s economy experienced a significant high inflation rate meaning
that the country has been undergoing this severally over several periods of time.
There was a similar case in 1973 when this country economy inflation rate reached
approximately 34 percent (Hasan, M. & Alogeel, H. 2008). This happened during these two
periods as a result of an oil price boom, but later in 2008, the inflation experienced some kind of
motivation due to the growth in domestic demand as well as an increase in food and other prices
in rental services (Al-Hamidy 2010).
There were several things to blame either the bottlenecks in supply, remarkable
government expenditures or perhaps the given fixed part regime that the country has
implemented since 1986, and has a result of this, we are in the position to identify some of the
Running Header: Inflation Rate in Saudi Arabia
key cause of inflation rate in Saudi Arabia. This task tries to focus on the causes of inflation in
Saudi Arabia and we are going to analyze whether it is oil prices, money supply or perhaps total
import values. All these are some of the major reasons for inflation causes in this particular
Causes of Inflation Rate in Saudi Arabia
The monetary expansion because of the pigged currency, as well as the high oil prices,
sometimes seem to have no impact on causing the inflation rate to go high in the country.
However, this does not assume that the oil prices do not have any impact on causing inflation
rate to increase in Saudi Arabia.
It has discovered that many sources have discovered that oil prices shock causes Saudi
Arabia values to shoot up, which in return causes inflation rate to increase through imported
goods and services. To be specific, Hasan, M. & Alogeel, H. (2008) found that in the long-run,
inflation, in the long run, inflation in the trading partners is in the main factor affecting inflation
in Saudi Arabia and Kuwait. In addition, imports in Saudi Arabia are less volatile when
compared to export when oil prices go down.
Housing and Food Prices
According to the research that was done by the Al-Hamidy (2010), it was established that
housing, as well as food prices, were the leading causes for inflation in Saudi Arabia in 2008. AlHamidy (2010), put out some suggestions that the rental prices were being driven by both
demographic pressures as well as lack of supply for real estate development.
Running Header: Inflation Rate in Saudi Arabia
It was also established that these food prices increased due to the global droughts and
increases global demand in the product-exporting countries. There are significant factors
affecting the pressure on the rental price in Saudi Arabia. For instance, it has been established
that private homes have been reaching unrealistic values, which has then rendered it difficult for
many citizens to afford to purchase new a house because of their low income.
Most of the real estates in under the control of monopolists who are increasing property
prices so much in some of the major cities such as Riyadh, Dammam and, Jeddah. Due to this,
most people opted to move into rental properties as and the only way to survive under the
existing living costs. In addition, the housing sector experiences lot of challenges because of lack
of mortgages institutions as well as weak regulations that easily provides a fundamental structure
and tools to enable evaluation of the values of homes and properties according to its real market
The housing industry requires more intervention from both government and private agencies
in order to provide a structural base market which translates into to less monopoly power.
Through this process, the people will be aware and shall increase the knowledge for both
homeowners as well as the real estate developers for them to compete in a fair market.
New Sectors Contribution to GDP
The high revenue from oil exports has been used in developing other sectors to contribute
significantly to Saudi Arabia’s GDP. Enormous economic cities have been built to provide more
economic diversifications and create more jobs for the Saudi. In addition, the government has
been launching major investments in many sectors in general such as education, health, and
Running Header: Inflation Rate in Saudi Arabia
security. In addition, the significant project in petrochemical, as well as chemical products, have
been taken place to contribute to the global market.
For instance, Ras Altaura integrated refinery and petrochemical project that would become
one of the biggest petrochemical facilities and its kind. Further, the private industry has been
contributing more to the Saudi’s Arabia economy through privatization and private investments
in telecommunication, airlines, and energy.
Impacts of Inflation Rates in Saudi Arabia
Inflation often the economy majorly in there ways: Fiscal, political and economic. At the
fiscal level, inflation is perceived to either positive or negative. In across the world, countries
with debts usually benefit from unexpected inflation because this inflation will cause their debts
to lose its value in the real times and when there is an increase in inflation, the country’s loses its
purchasing power and due to this, debts has less value in real terms. And it is anticipated to offset
in the long terms.
It is also discovered that the government of Saudi Arabia will find it complex to maintain
its fiscal discipline during the inflation periods as people of the country will definitely demand
increases in many areas such as salaries, good subsidies as well as welfare payments for purposes
of offsetting their the country’s decaying purchasing power.
On the other hand, the inflation causes political pressure because of the social cost of
inflation which often act as a tax on holding finances and disadvantage for fixed income payment
such as pensions. The Saudi Arabian people with low income will consequently suffer and the
unemployed people specifically youth will worsen this situation.
Running Header: Inflation Rate in Saudi Arabia
In terms of economy, the Saudi Arabia, the high inflation will cause uncertainty which is
connected to various anticipations. The country’s business environment are usually negatively
affected by uncertainty which later translating to impacting the economic growth.
Inflation is a good thing in the sense that during inflation, people tend to postpone
consumption on the anticipation of further price falls to come. This makes companies to delay
their investment decisions, thus implying that output will at the end to reduce and employment
will go up. The real interest rates also increases hence leading to tightening the credits.
However, high inflation is not good. Despite the high prices, rapidly increasing inflation
discourages people from saving, discourages investments by reducing the future value of
earnings as well as complicating economic planning. At the worst situations, inflation triggers
social unrest and political issues. Hence, a moderate and stable rate of price growth, which
enable both consumers and producers to be comfortable is a global achievement of monetary
I wish to conclude by stating that the issue of inflation rate in Saudi Arabia is difficult to
identify because there is no specific root cause but due to the combination of key factors.
According to the 2018 budget that was launched in December 2018, the country and the
government anticipates inflation to hit more than 5.7 percent in 2018. The research done by one
of the institutions known as FocusEconomics Forecast anticipates inflation to hit an average of
3.6 percent in 2018, which is up to 0.2 percentage points from the projections that were done last
month. Going forward, the institutions predicts inflation averaging 2.7% in 2019.
Running Header: Inflation Rate in Saudi Arabia
AlHamidy, A. (2010) Monetary Policy in Saudi Arabia.
Alshahrani, M.S.A and Alsadiq, M.A.J, (2014) Economic Growth and government spending in
Saudi Arabia: an empirical investigation. International Monetary Fund

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