Inflation in Saudi Arabia

A short history of inflation in Saudi Arabia

Imported Policy in an Oil Boom (2007 to 2008)

Saudi inflation peaked at 11.1% in the year to July 2008, which for a country whose currency has been fixed to the United States dollar since 1986 was largely an imported problem. The Federal Reserve was cutting rates through 2007 and 2008 in response to the American housing crisis, and the riyal's peg meant Saudi Arabia had to follow, loosening policy into an economy that was booming on a record oil price. Rents and construction costs rose fastest.

That is the standing trade-off of the peg. It gives an oil exporter certainty in the currency its exports are priced in, and removes any ability to set policy for its own cycle, which for Saudi Arabia runs with the oil price rather than with the American one. Inflation has been low for most of the period since, including outright falls when domestic demand weakened.

Post-Covid Inflation (2021 to 2023)

In Saudi Arabia, prices rose fastest in June 2021, at 6.4%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.