Inflation cools in April

Prices continued to show resilience against the war’s inflationary pressures in April. The annual headline inflation rate cooled to 1.7% in April, down from 1.8% in March, according to the latest data (pdf) from Gastat.

What’s keeping the lid on inflation? Readings remain stable at well under the 2% level, as higher oil prices could be keeping price increases sticky for now, analysts told us earlier in April. The government also ramped up spending on fuel and food subsidies in 1Q, which may have helped keep inflationary pressures at bay.

Will we feel it later? “Although energy subsidies mitigate much of the inflationary impact of the war being felt globally, and in parts of the Gulf, the secondary impacts of this are likely to be somewhat inflationary even in Saudi Arabia, with a lag” Justin Alexander, director of Khalij Economics and GCC analyst for GlobalSource Partners, tells EnterpriseAM. The government may have absorbed some of the higher logistical costs in the short term, but an upward trend is likely as the wave starts hitting businesses and consumers, Alexander adds.

Hormuz is still closed, and we’re reaching the tipping point. “We are now getting to a critical stage for some global reserves of fertilizers and gases used in production and manufacturing (like Helium), which will create a compounding effect on inflation if not dealt with,” MENA Economist Hamzeh Al Gaaod tells us.

The breakdown

Housing costs led the y-o-y uptick, rising by 3.8%, driven by a 4.8% increase in rentals. Still, housing cost inflation has been slowing since last year as the government has been actively working to boost housing availability, including imposing taxes on undeveloped lands and a freeze on rent increases in the capital. Most recently, it introduced a vacant property tax system.

Meanwhile, prices for personal care and miscellaneous goods jumped 6.3% y-o-y, driven by a 22.5% surge in jewelry and watch prices. Ins. and financial services increased by 2.3% y-o-y, pushed by a 4.0% increase in ins. premiums. Transport prices and restaurant and hospitality services rose by only 1%, and food and beverage prices slightly inched up 0.6% y-o-y.

A few segments even saw deflation: Furniture and household equipment saw a 0.5% y-o-y decline, and clothing and footwear also edged down 0.3%.

ALSO- Wholesale pressure remained flat, with the wholesale price index rising 3.3% y-o-y in April, similar to March’s reading, according to separate Gastat data (pdf).

AND- Manufacturing costs saw a sharp increase in March. The producer price index posted a 5.5% y-o-y surge in March, the highest uptick since the survey began in January 2024, according to Gastat data (pdf). The sharp acceleration was fueled by a 5.9% rise in manufacturing prices, a 0.2% rise in the prices of electricity, gas, steam, and air conditioning supplies, alongside a 10.8% increase in water, sewerage, and waste management services.

The surge makes sense: Slower delivery times due to the switch from Hormuz to trucks, and increased shipping prices due to rising ins. and fuel costs, are likely starting to pass to manufacturing prices, Al Gaood says.