Inflation cooled to 1.7% in February, but a wartime rebound is looming. The annual inflation rate decelerated from 1.8% in January, according to the latest data (pdf) from the General Authority for Statistics (Gastat).

Housing remains the main anchor: The 1.7% headline figure was driven almost entirely by the housing and utilities segment, which surged 4.1% y-o-y on the back of a 5.1% jump in actual housing rents. Personal care and miscellaneous goods also jumped 8.2%. Price action was largely muted otherwise, with food, beverages, and clothing remaining flat.

A little inflation isn’t a bad thing. A 1.7% print is “somewhat lower than necessary” for a rapidly expanding economy, MENA economist Hamzeh Al Gaaod tells EnterpriseAM. To sustain its economic diversification targets, the Kingdom needs a touch of demand-pull inflation to signal healthy investment and consumer appetite, he argues.

What comes next: A war-driven supply shock

The data captures the market just before the outbreak of the war, setting the stage for a likely rebound in the cost of living.

If the regional conflict persists beyond the first few weeks, the disruption to supply chains is expected to drive up the cost of housing, water, electricity, gas, and other fuels, Al Gaaod says. “These essential services could increase inflation [...] in Saudi Arabia due to, of course, the outbreak of the war,” Al Gaaod noted.

ALSO- Wholesale pressure is already building: The wholesale price index accelerated to 3.5% in February, fueled primarily by a massive 34.1% annual surge in basic chemicals and a 3.9% rise in refined petroleum products, according to separate Gastat data (pdf).

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