• Inflation stable at 4.2% Y-o-Y in February Saudi Arabia’s consumer price inflation was largely stable at 4.2% Y-o-Y in February compared to 4.3% Y-o-Y in January, according to data released earlier today. The outturn was marginally lower than our forecast of 4.4%. Annual non-food inflation showed similar trends, registering 5.1% in February compared to 5.2% in January. On a monthly basis, overall prices fell 0.1% M-o-M with food prices falling 0.3%.
• Still no sign of second-round effects as expected Monthly price developments confirm our view that second-round effects of the fiscal measures executed in late December are likely to be gradual. The numbers unsurprisingly indicate companies refrained from passing cost pressure to consumers, confirming a similar trend in PMI data realised earlier in the month, as the government discourages companies from making any price hikes in order to ease the impact of inflation on the average consumer. Supportive factors from the strong dollar and low global commodity prices are also limiting inflationary pressure.
• Maintain 4.5% inflation forecast for 2016 We maintain our average 2016 inflation forecast of 4.5% Y-o-Y. We expect to see a very gradual pass-on effect on consumer prices, from the fiscal measures, over the course of the year. Weak economic activity is also supporting the absence of additional inflationary pressure, while a potentially stronger dollar is likely to partially preserve purchasing power.

Mohamed Abu Basha