Saudi’s Consumer Price Index, Case Study Example

The Evaluation of Saudi’s Consumer Price Index (CPI) and Inflation

The Consumer Price Index (CPI) refers to a widespread measurement that is applied in establishing the price deviation of both tangible and intangible products that represent economic expenditure. The process involved in determining the CPI value for a country is tiring. As a mechanism aimed at categorizing consumable commodities, some classifications and sub-classifications have been devised. The rural and urban consumption features have additionally been integrated as elements that aid in establishing the CPI of a country. The concern raised regarding the essence of the CPI to a country should be addressed by analysing the relationship between the different economic tenets of a country and the CPI. Among the most known economic features, the inflation measurement depends on the value of the CPIs compared over a range of duration. While aiming to establish the characteristics of the CPI and inflation in Saudi Arabia, this study will seek to determine some of the elements that are used in measuring the CPI in the country. The study, in addition to discussing the historical trend of inflation rates and its possible reasons, will seek to establish some of the elemental differences and similarities in the CPI characteristics of Saudi Arabia and the United States.

CPI and Inflation Features

The evaluation of the data on the Saudi’s inflation between 1995 and 2015 shows an irregular change in the inflation and CPI features. The value is a reflection of the yearly percentage deviation of the expenses to the consumers of commodities that may be changed at specific durations. A measure of the value of the inflation and CPI of the country between 1995 and 2015 is tabulated in table 1.0.

Table 1.0

The percentage change in the average consumer prices in the country is shown.  The country recorded unfavourable changes in the value of the average consumer prices in the country between 2012 and 2009. Inflation during this period increased gradually.  The evaluation of the entire inflation data between 1995 and 2014 shows that the country experienced a 6.10 value of inflation in 2008. This was the highest value that the state has ever recorded during the past twenty years. The change in the value of the CPI in the same year was found to be 20.98%. The analysis of the overall CPI values for the last 20 years shows that a CPI value of 258.18% was realized. The value was the highest during the twenty-year duration. Hence, the change in the price of commodities was highest in 2006. Between 1997 and 2001, the country experienced favourable economic features. The rate of inflation was negative during the respective years. According to the figures, the country experienced a gradual increase in the value of inflation from the year 2002 and 2014. Based on economic principles, a negative value of the inflation is an indication of favourable economic terms and elements to consumers of commodities.

The unfavourable changes in the rate of inflations during the 2002 and 2014 span may be attributed to some factors that have universally been known to cause inflation. The injection of a high amount of financial resources to the economy of the country during the subsequent years may have caused an increase in the prices of commodities within the economy. The demand for primary products may have increased during the period, resulting in the unfavourable change in the consumer price index. The country recorded a -2.10 value of inflation in 1999. The value was the lowest rate of inflation the country recorded analysed during the past twenty years.

Foodstuffs and beverages (26%) top the list of some of the most significant categories in the CPI. This category is trailed by renovation fuel and water that form 18%. The transportation facilities are listed third with a 16% value. The other groups make up the remaining 40%. Clothing, healthcare and expenses on miscellaneous are included in the 40% category. The graphical representation shown below provides the recent details regarding the changes in the rates of inflations in the country.

The information regarding the inflation indicator for the country has been acquired from a variety of sources. World Bank and governmental agencies provided some of the data.

US-SAUDI Comparison

The study of the inflation-CPI features of the United States and Saudi Arabia shows conflicting modalities that the two countries have adopted in measuring their respective CPI and inflation features. The difference in inflation measurement between the two nations puts into consideration the basket of items that are used in measuring inflation in the two countries.

While inflation in the two states results from almost similar basket commodities, the percentage value of the inflation caused by the respective categories between the two countries differs. For instance, while fuel is a significant basket element that influences inflation in both countries, the magnitude of the effect of oil on inflation or rather its CPI index in both countries differs by a certain margin. Still, some commodities that are found in the US basket list are not included in Saudi’s basket list of products.  Moreover, the difference is likely to emanate from the fact that the two countries have divergent views on religious doctrines and traditions. For instance, alcohol and entertainment that are included in the basket list of CPI in the US are not included in Saudi’s CPI index.

The two countries uses different currencies whose values in the world market determine economic conditions. US has enjoyed stability concerning its currency than Saudi Arabia though the latter’s currency has increasingly shown an increment. The decrease in a country’s currency value is a result of an increase in prices of sensitive commodities such as oil, a product that runs the economy. Hence, the respective currency of each of two countries acts as a basket item.

Historical Trend

The study of the trend of inflation of a number of countries shows a change in the rate of inflation over a certain period. This pattern may be observed when CPI-Inflation values of Saudi Arabia are studied. The country’s economy between the years 1997 and 2001 enjoyed small values of inflations. The inflation value for the state began rising from 2002. The gradual increase in inflation has been a characterized in the country from 2002 to date. The global financial crisis has been because the poor economic performance of most countries. It is likely that the country during this period has experience weakening of the value of its currency in the world state.

Cost of Living Comparison

The evaluation of the CPI data shows a characteristic rise in the cost of living. While the country recorded more positive values of the CPI, an indication of low inflation, the recent years, 2009 to 2014 have been characterized by adverse changes in the CPI values. The negative values of the CPI indicate a rise in inflation by a factor that depends on the negative figures. Hence, the analysis of the CPI values of the country over a span of twenty years shows a gradual rise in the cost of living.

Work Cited

Berlatsky, Noah. Inflation. Detroit, MI: Greenhaven Press, 2013. Print.

Ghaleb, Dr. Khaled Ismail, and Dr.Mohamed Metwaly Mohamed. ‘Characterization Of IVS-110,IVS-6 And Codon 39 Beta-Thalassemia Mutations Using Amplification Refractory Mutation System (ARMS) Technique In Bisha, Saudia Arabia’. IJAR 4.1 (2011): 406-408. Web.

Herr, Hansjo?rg, and Milka Kazandziska. Macroeconomic Policy Regimes In Western Industrial Countries. Abingdon, Oxon: Routledge, 2011. Print.