Impacts of Price Shocks: Price Modeling Analysis for Saudi Sectors

Abstract

This paper investigates the impacts of increasing prices on the following sectors in Saudi Arabia: electricity, gas, water, manufacturing, agriculture, transport, storage, and communications. It evaluates the changes in producer and consumer prices and household living expenses. The Saudi Social Accounting Matrix (SAM) was developed along with a price multiplier approach used to analyze different simulations. Two findings stand out. First, there are differences in impacts according to household groups and the direction of the effects. Low-income and middle-income households were the most negatively affected by the price hikes. Second, the potential impacts of manufacturing, transport, storage, and communications price shocks are high. For a 50% increase in prices, the overall increases in cost of living for low-income households and middle-income households, as estimated with the SAM price model, are 20.59% and 6.17%, respectively. In contrast, the impacts of electricity, gas and water supply, and agriculture prices are minor, estimated at 2.05% and 2.75%, respectively. This would indicate that special attention should be given to compensatory mechanisms to minimize the adverse effects on low-income and middle-income household groups.