Saudi deflation eases in October, inflation expected next year

The annual declines have partly resulted from the fading impact of last year's introduction of a value-added tax (VAT), implemented to increase government revenues, but the deflationary trend has eased gradually as the government is having some success in boosting the Saudi non-oil economy.

The October CPI rose 0.2% on a monthly basis, data from the General Authority for Statistics showed. "Looking ahead, we think that headline inflation will continue to edge up over the last couple of months of this year before returning to positive territory at the start of 2020," said Capital Economics in a research note.

"Amid signs that the government is preparing to tighten fiscal policy over the next few years, a fresh round of tax hikes and subsidy cuts looks increasingly likely," it said. For the first time in three years, Riyadh plans to reduce expenditure with its next budget, though only slightly.

It expects its deficit to widen to 187 billion riyals ($49.87 billion) or 6.5% of gross domestic product next year, the finance minister said earlier this month.

Copyright Reuters, 2019