Saudi inflation held steady at 1.8% in June — The real test lies ahead

Saudi inflation stayed calm in June — but the reading closed before the fighting did. Headline prices held at 1.8%, unchanged from May, according to the latest data (pdf) from Gastat, keeping the rate below 2% for another month. What it doesn’t capture is the fresh US-Iran strikes and the US naval blockade on Iranian shipping through the Strait of Hormuz, both of which landed after the survey window.

How contained is our inflation? Set against the rest of the world, remarkably well. The IMF projects global inflation climbing toward 4.7% in 2026, which leaves Saudi’s sub-2% rate among the most stable environments anywhere, Senior Economist at MT Trading Ahmed Chreim tells EnterpriseAM. He credits the SAR’s USD peg and government subsidies for the insulation.

REMEMBER- The IMF forecast that Saudi’s inflation will reach 2.3% this year, with high shipping and ins. costs to add some price pressures.

The next few readings are the real test. “The inflation print itself is a good-news story of stability, but it was taken before this week’s escalation fully played out,” Chreim tells us. Higher shipping ins., freight costs, and potential import disruption — given that Saudi imports a large share of its food and consumer goods — could push non-oil inflation up if the crisis drags on, he adds. Justin Alexander, director of Khalij Economics and GCC analyst at GlobalSource Partners, expects the lag to show, telling us inflation is likely to accelerate in the second half as the crisis feeds through to global prices.

Saudi is more cushioned than its neighbors. The Kingdom can reroute a meaningful share of crude through the East-West Pipeline to the Red Sea, leaving it less exposed to a Hormuz shutdown than Iraq, Kuwait, Qatar, and the UAE, Chreim says. He puts combined Saudi-UAE pipeline capacity at roughly 2.6 mn bbl / d — well short of the c. 20 mn bbl / d that normally transits the strait, so a prolonged closure would still cut export volumes. Its Red Sea ports and land links to Oman and Jordan add further insulation from the war’s hit to import prices, says Alexander, with fuel subsidies adding a further layer of protection — at a fiscal cost.

The breakdown

Housing is still the primary cause of inflation, contributing 0.7 percentage points to the 1.8% headline reading. The housing, water, electricity, gas, and other fuels division rose 3.5% y-o-y, led by a 4.4% increase in actual rents.

Elsewhere, personal care and miscellaneous goods climbed 3.8%, driven by a 14.7% jump in jewellery and watch prices. Entertainment, sports, and culture costs rose 2.5% on the back of a 4.2% increase in holiday package prices. Ins. and financial services rose 2.1% y-o-y. Transport costs increased 1.7%, restaurant and hotel services 1.5%, and food and beverages 1.4%.

Two divisions continued to pull the other way: Furnishings and household equipment fell 0.6% y-o-y, while clothing and footwear declined 0.4%.

ALSO- Wholesale prices edged up. The wholesale price index (pdf) rose 4.8% y-o-y in June, up from 4.6% in May. The increase came mainly from a 9.3% rise in other transportable goods — including a 62% jump in basic chemicals and a 3.9% increase in petroleum products — and a 1.6% rise in metal products, machinery, and equipment.

MEANWHILE- Manufacturing costs slowed their climb. The producer price index (pdf) rose 7.5% y-o-y in June, down from 9.1% in May. The uptick was driven by an 8% increase in manufacturing prices, an 8.3% rise in water supply, sewerage, and waste management, and a 2% increase in electricity, gas, steam, and air conditioning supply.