Saudi Arabia, Inflation and its Monetary Policy Agenda

Abstract

Due to the aftermath of global financial crisis and emerging recovery, inflation is considered important in future years of expansion. This study analyses the granger causality effect of major variables like changes in food and beverages, changes in global inflation, changes in US dollar trade-weighted index, and changes in housing availability on inflation. While all factors Granger caused changes in inflation, they added little value on case by case basis. Using a Vector Autoregressive (VAR) framework, multi-step ahead forecasts suggest improvement in forecasting changes in inflation, and limited housing supply remains a major cause of inflation in Saudi Arabia.