Saudi Arabia’s annual inflation rate rose to 2.1% in December 2025, up from 1.9% in November, according to the latest General Authority for Statistics (Gastat) figures (pdf). While the headline figure remains low compared to global peers, it confirms that Saudi inflation is rooted in its internal housing and infrastructure story. The uptick signals a stabilization of price growth near the 2% mark as the Kingdom enters 2026, with the annual headline rate having fluctuated between 1.9-2.3% throughout the past year.

What changed? The 2.1% rate marks a year of stability, with the headline rate fluctuating in a narrow 1.9-2.3% band throughout 2025. However, the composition of that inflation is shifting.

Rentals are the engine: Housing and utility costs rose 4.1% y-o-y, fueled almost entirely by a 5.3% jump in residential rents. The data confirms that urban expansion is outpacing supply, with persistent 5%+ growth in rents creating a higher floor for the cost of living — and, by extension, wage expectations — in major cities including Riyadh.

High-end consumer spending is looking healthy: Personal care and social protection prices rose 7.0%, largely due to a massive 25.8% spike in jewelry and watch prices.

Wholesale pressure: The Wholesale Price Index (WPI) hit 3.1% in December, driven by an 8.2% jump in refined petroleum products and a 7.8% rise in basic chemicals, according to Gastat’s wholesale price index (pdf). Rising chemical wholesale prices — which were up 13.8% m-o-m — suggest potential margin pressure for manufacturers heading into 1Q 2026.

What comes next

The peak of the “housing heat” effect may be in the rearview mirror: Capital Economics predicts the headline rate will cool toward 1.0% by 3Q 2026 as the rental market finally begins to absorb new supply. If rental pressures dissipate as expected, the headline rate should dip back below the 2.0% mark through the second half of the year.

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