Saudi Inflation Holds Firm Despite Energy Shock

Riyadh’s commercial Tahlia Street. (AFP)
Riyadh’s commercial Tahlia Street. (AFP)
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Saudi Inflation Holds Firm Despite Energy Shock

Riyadh’s commercial Tahlia Street. (AFP)
Riyadh’s commercial Tahlia Street. (AFP)

Saudi Arabia’s inflation rate held steady at 1.8% in June, underscoring the economy’s price stability as renewed conflict in the Middle East raises fears of higher energy costs and a fresh wave of global inflation.

The reading, released by the General Authority for Statistics on Wednesday, kept the Kingdom among the G20 economies with the lowest inflation rates and broadly aligned with Saudi government and International Monetary Fund forecasts.

The data showed that the Saudi economy entered the latest period of global volatility from a relatively strong position, with inflation remaining subdued despite uncertainty across energy and financial markets.

The June figures preceded renewed turbulence in global oil markets after the war in the Middle East resumed, pushing crude prices higher and raising concerns that energy costs could feed into consumer prices elsewhere.

For Saudi Arabia, stable inflation provides a buffer against any price pressures that may emerge in the coming months.

Housing remained the main driver of inflation. Prices for housing, water, electricity, gas and other fuels rose 3.5% from a year earlier, led by a 4.4% increase in actual housing rents. The rise reflected stronger demand in major cities and rapid urban expansion linked to the Kingdom’s large development projects.

Transport prices increased 1.7%, while food and beverage prices rose 1.4%. Declines in several other categories helped contain the overall rate.

Prices for personal care, social protection and miscellaneous goods and services rose 3.8%, driven by a 14.7% jump in jewelry and watch prices amid record increases in global gold and precious-metal prices.

Recreation, sports and culture prices climbed 2.5%, reflecting a 4.2% increase in the cost of holiday packages and tourist trips.

By contrast, prices for furnishings, household equipment and routine household maintenance fell 0.6%, while clothing and footwear prices declined 0.4% year on year. The falls helped offset inflation in housing and other services and reflected continued competition across consumer markets.

Monthly rise remains modest

On a monthly basis, consumer prices rose 0.2% in June from May 2026.

Food and beverage prices increased 0.7%, driven by a rise of the same rate in food prices.

Housing, electricity and gas prices edged up 0.1%, while transport costs rose 0.4%.

Prices for personal care and social protection fell 1.0% from the previous month. Restaurant and accommodation services declined 0.1%, while communication prices also slipped 0.1%.

Among the G20’s lowest

Saudi Arabia's inflation remained below the levels recorded in several major economies.

Inflation stood at 3.5% in the United States in June, around 3% in Britain and close to 2% in the eurozone. Some emerging economies continued to post much higher rates.

That left Saudi Arabia among the least inflationary economies in the G20, even as it pressed ahead with large-scale investment and development programs.

The Kingdom’s inflation rate also remained below the average for advanced economies and well below that of emerging and developing markets, where food, energy and currency pressures have been more pronounced.

The figures point to Saudi Arabia’s ability to maintain price stability while expanding investment and implementing major development projects.

That contrasts with economies where stronger spending or higher energy costs have translated into faster inflation.

Official forecasts

The June reading was consistent with Saudi Finance Ministry forecasts for average inflation of about 2% in 2026.

It also aligned with IMF estimates issued in May and June, which projected that average inflation in Saudi Arabia would fall below 2% this year.

The IMF attributed the outlook to the strength of the Kingdom’s economic fundamentals and the effectiveness of domestic policies in containing inflationary pressures.

The fund expects global inflation to average 4.7% in 2026, up from 4.1% in 2025, before easing to 3.9% in 2027.

Those projections reflect continued pressure from tensions in the Middle East and higher energy prices. Saudi inflation, by comparison, is expected to remain below half the projected global average.

Why inflation has stayed low

Economists attribute the Kingdom’s low inflation to resilient economic fundamentals, effective monetary and fiscal policies, improved supply-chain efficiency and government measures aimed at maintaining adequate supplies of goods and services.

Rapid growth in non-oil activities and increased investment under Vision 2030 have also strengthened the economy’s ability to absorb external shocks without a significant pass-through to consumer prices.

Stable inflation helps preserve household purchasing power, but its effects extend further. It supports investor confidence, gives businesses greater visibility over future costs and reduces uncertainty around investment and consumption decisions.

Analysts said moderate inflation also gives policymakers more room to support economic growth as global markets brace for the impact of higher energy prices.

They expect the effect of those pressures on Saudi consumer prices to be more limited than in many other economies.

More certainty for businesses

Hisham Abu Jamea, chief adviser at Naif Al Rajhi Company, said stable inflation was a positive sign for prices and purchasing power and reinforced Saudi Arabia’s position among the G20 economies with the lowest inflation rates.

“Stable inflation provides a more predictable environment for individuals and the business sector and gives decision-makers greater room to focus on supporting economic growth,” he told Asharq Al-Awsat.

Abu Jamea said Saudi Arabia had managed to keep inflation below 2% despite global disruptions and economic challenges.

Housing remained the main source of pressure because of its large weighting in the consumer price index, he added.

However, recent government initiatives in the real estate sector were expected to ease price pressures and help bring inflation down, he stressed.

Growth without sharp price increases

Salem Baajajah, a professor of economics at King Abdulaziz University, said the 1.8% reading showed that economic growth in Saudi Arabia was no longer necessarily accompanied by sharp price increases.

He described that as an important shift from the experience of many global economies in recent years.

Maintaining inflation at its current level gives policymakers more room to proceed with major projects and economic diversification programs without allowing higher prices to undermine consumption or investment, he told Asharq Al-Awsat.

“The most important indicator is not merely that inflation remains low, but the quality of that stability,” Baajajah said.

“If it is supported by increased domestic production, broader competition and improved supply-chain efficiency, it becomes sustainable rather than temporary,” he remarked.

“The challenge in the next stage will not be to push inflation even lower, but to keep it within a moderate range that is consistent with an economy growing rapidly and attracting substantial investment,” he added.



Oman and Yemen Sign Two Cooperation Agreements on Electricity Interconnection

Two cooperation agreements were signed on electricity interconnection between Oman and Yemen (Oman News Agency)
Two cooperation agreements were signed on electricity interconnection between Oman and Yemen (Oman News Agency)
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Oman and Yemen Sign Two Cooperation Agreements on Electricity Interconnection

Two cooperation agreements were signed on electricity interconnection between Oman and Yemen (Oman News Agency)
Two cooperation agreements were signed on electricity interconnection between Oman and Yemen (Oman News Agency)

Oman and Yemen signed two joint cooperation agreements on Sunday concerning an electricity interconnection project between the power grid in Oman's Dhofar Governorate and the power grid in Yemen's Al Mahrah Governorate, as part of the two countries' cooperation in the energy sector.

According to the Oman News Agency, the two agreements include supplying electricity to several areas in Al Mahrah, including Hawf and Shahan, as a first phase, through the electricity distribution network.

The planned loads are estimated at 3 megawatts for Hawf and 5 megawatts for Shahan, eventually reaching the city of Al Ghaydah with loads of up to 50 megawatts.

The agency said the project is part of efforts to support the stability and availability of electricity supplies in the beneficiary areas of Al Mahrah by connecting them to the electricity grid in Dhofar.

It added that the agreements aim to strengthen energy infrastructure, address electricity needs in the beneficiary areas, and promote stability, development, and the advancement of the social and commercial sectors.

According to the agency, the first agreement was signed on the Omani side by Ali Shammas, CEO of Nama Dhofar Services, and on the Yemeni side by Othman Owaid, Director General of the Public Electricity Corporation in Al Mahrah Governorate.

The second agreement was signed on the Omani side by Ahmed Al Abri, CEO of Dama Power and Water Procurement Company, while the Yemeni side was represented by engineer Mohsen Ali Balhaf, Director of the Yemeni Oil Company in Al Mahrah Governorate.


Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman Reaffirm Commitment to Market Stability

FILE PHOTO: OPEC logo is seen in this illustration taken June 25, 2026. REUTERS/Dado Ruvic/Illustration/File Photo
FILE PHOTO: OPEC logo is seen in this illustration taken June 25, 2026. REUTERS/Dado Ruvic/Illustration/File Photo
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Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman Reaffirm Commitment to Market Stability

FILE PHOTO: OPEC logo is seen in this illustration taken June 25, 2026. REUTERS/Dado Ruvic/Illustration/File Photo
FILE PHOTO: OPEC logo is seen in this illustration taken June 25, 2026. REUTERS/Dado Ruvic/Illustration/File Photo

The seven OPEC+ countries, which previously announced additional voluntary adjustments in April and November 2023, namely Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman met virtually on September 6, 2026, to review global market conditions and outlook, SPA reported.

The seven participating countries decided to maintain September 2026 required production for October 2026 as detailed in the table below.

The seven countries reiterated their collective commitment to achieve full conformity with the Declaration of Cooperation.

The seven OPEC+ countries will continue to hold monthly meetings to review market conditions.

The next meeting will be held on October 4, 2026.


South Korean Chips Head to Saudi Arabia: From Manufacturing to Computing

An AI chip with the South Korean flag (Reuters
An AI chip with the South Korean flag (Reuters
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South Korean Chips Head to Saudi Arabia: From Manufacturing to Computing

An AI chip with the South Korean flag (Reuters
An AI chip with the South Korean flag (Reuters

Chips are no longer merely electronic components hidden inside devices. They have become the foundation of the artificial intelligence economy, as global competition shifts from developing models to having the capacity to run them efficiently and at scale.

As demand for computing chips rises, the semiconductor industry is converging with energy, data centers, and digital infrastructure, creating a new map of technological power that extends beyond countries that manufacture chips to countries capable of hosting and operating the computing power they require.

In this race, Saudi Arabia is emerging as a growing destination for Asian chip and AI companies, driven by the availability of energy, the rapid expansion of data centers, and its ambition to build a sovereign AI ecosystem. South Korea, meanwhile, is moving to strengthen its position at the heart of the value chain by increasing government spending on chips, AI, and the infrastructure that supports both.

The decision by South Korean AI chipmaker Rebellions to establish its regional headquarters in Riyadh embodies this new intersection between those who make chips and those who have the capacity to run them. Its CEO, Sunghyun Park, told Asharq Al-Awsat that three main factors make Saudi Arabia an attractive destination for the company: high levels of energy availability, a commitment to developing AI infrastructure, and strong ambitions in sovereign AI.

Park added that the combination of these factors makes Riyadh a suitable location for Rebellions to expand its AI chip business.

The Korean company's move comes as Saudi Arabia works to expand its ability to accommodate growing demand for computing, alongside rising investment in data centers and AI projects.

Sunghyun Park, CEO of South Korean AI chipmaker Rebellions (Asharq Al-Awsat)

821 Trillion Won in Spending in 2027

South Korea proposed this week the largest government budget in its history, worth 821 trillion won ($596.92 billion) for 2027, an increase of 12.8 percent from the current year and the largest annual increase ever. A significant portion of the spending will be directed toward AI, semiconductors, and related infrastructure.

Seoul is betting on increased public spending to maintain its position in the semiconductor industry, one of the most important drivers of its economy, as global demand rises for chips used in AI applications.

The proposed budget includes 21.3 trillion won for industrial water systems, electricity grids, and logistics services needed to support the next generation of semiconductor infrastructure, along with 2.6 trillion won in a dedicated semiconductor budget.

South Korea is benefiting from the global surge in demand for high-bandwidth memory (HBM), which is used in AI systems, with Samsung Electronics and SK Hynix reporting strong profits driven by this demand.

"Sovereign AI" Connects Riyadh and Seoul

Park believes that the sovereign dimension of AI has become an important factor in countries' decisions about the technologies they use, particularly as some data and applications are tied to sensitive sectors. He said the need for AI technologies that can be managed locally is linked, among other things, to "national security," noting that sensitive information, such as nuclear energy or weapons programs, requires governments to control how AI is used, set its boundaries, and operate it entirely within the country.

This reflects one of the major trends in the AI market. Governments and companies are no longer focused solely on gaining access to advanced models. They are also concerned with where data is stored, where models are run, and who owns the infrastructure on which they depend.

Aramco and HUMAIN in the Chip Supply Chain

Rebellions already has an investment connection to Saudi Arabia. Park said Aramco invested in the company about two years ago, while Rebellions is in ongoing discussions with HUMAIN about strengthening supply chains for AI infrastructure technologies.

He said HUMAIN has become one of the most important organizations operating in AI in Saudi Arabia and globally, and that cooperation with the company could have a positive impact on the region's AI sector.

These moves come as Saudi Arabia continues to expand its digital infrastructure, including data centers. This provides companies specializing in chips and computing with a potential regional market that goes beyond simply selling components to participating in the construction of the AI ecosystem itself.

Competition Is Shifting From Chip Speed to Operating Cost

Rebellions does not believe that competition in the AI chip market will be decided solely by a chip's ability to process more tokens per second. Instead, it will increasingly come down to the long-term cost of running AI.

Park said the company is focused on developing technologies that deliver "higher AI performance at a lower economic cost," explaining that an important metric for customers is not simply the number of tokens that can be processed per second, but also "cost per token."

The company's model focuses heavily on inference rather than distributing its efforts equally between inference and model training.

Park explained that inference is gradually becoming commoditized, meaning companies and users will increasingly care about obtaining good results at a reasonable cost, regardless of the specific technology used behind the scenes.

Energy Becomes Part of the AI Equation

This factor is becoming particularly important as energy consumption associated with data centers rises. The cost of electricity and chip efficiency have become part of the economic calculation involved in expanding AI use.

This is where the calculations of Riyadh and Seoul meet from two different angles. South Korea is investing in chips, electricity grids, and the industrial infrastructure needed to maintain its position in the value chain. Saudi Arabia, meanwhile, is building the energy supply, infrastructure, and data centers needed to absorb the next wave of computing.

The AI race between countries, therefore, is no longer only about models and software. It is about who makes the chips, who owns the data centers, who can provide the energy, and who can deliver all of it at the lowest possible cost.