Saudi Arabia's inflation rate slowed to 2.1% year-on-year in July, recording its lowest pace in five months as housing rent increases moderated, official statistics revealed on August 14.

The deceleration occurred despite a slight acceleration in food and beverage prices to 1.6%, whilst transportation costs contracted at a slower pace than in June.

The largest component by weight, "housing, water, electricity, gas and fuel," slowed to 5.6% with housing rents decelerating for the ninth consecutive month. Housing rents recorded their lowest level in 32 months at 6.6%, yet remained the main contributor to inflation, rising for the 41st consecutive month.

Makkah led rent increases in Saudi cities for the ninth consecutive month at 25.4%, followed by Riyadh at 12.9%, with Jazan ranking third. Buraidah, previously the highest city for housing rent inflation, saw prices contract -10.6%, becoming the only city with declining rents.

Riyadh's housing rent increases slowed to their lowest level in 28 months, occurring four months after Crown Prince Mohammed bin Salman's directive issued in late March, which outlined five measures to achieve balance in the capital's real estate sector.

By city, Makkah led overall inflation for the third consecutive month at 4.2%, surpassing Riyadh's 3.5%. Only Buraidah recorded price deflation.

Monthly inflation remained stable at previous levels, whilst annual average inflation for 2024 slowed to 1.7% from 2.3% in 2023, aligning with Finance Ministry expectations.

The International Monetary Fund attributed rent increases to expatriate worker inflows and major redevelopment plans in Riyadh and Jeddah. Government expectations indicate inflation will reach 1.7% in 2024 and 1.9% during 2025-2027.

Saudi inflation peaked at 6.2% in August 2020 after the government raised VAT from 5% to 15% in July 2020 amid declining oil revenues during the coronavirus pandemic.