Sunday,22 October, 2017
Current issue | Issue 1266, (15 - 21 October 2015)
Sunday,22 October, 2017
Issue 1266, (15 - 21 October 2015)

Ahram Weekly

Inflation on the rise

Last month’s leap in consumer inflation was mainly driven by higher food prices, reports Nesma Nowar

Vegetables prices
Vegetables prices
Al-Ahram Weekly

Egypt’s annual urban consumer inflation soared to 9.2 per cent in September, compared to 7.9 per cent in August, said the official statistics agency CAPMAS last week.

However, core inflation, which strips out subsidised goods and volatile items such as fruit and vegetables, fell to 5.55 per cent in September, down from 5.61 per cent in August.

“The jump in inflation to 9.2 per cent year-on-year in September was driven almost entirely by a rise in the volatile food component,” said a research note by Capital Economics, a London-based macroeconomic research group.

The increase in the prices of some commodities can be attributed to various reasons, including the depreciation in the pound’s value against the dollar making imports costlier, said Omnia Helmi, a professor of economics at Cairo University.

She said that the lack of dollars may have led some importers to face difficulties, including the payment of delay penalties, which are eventually shouldered by the consumer.

There was also a seasonal hike in household consumption during the recent period, which saw the advent of the holy month of Ramadan followed by the feast and then the beginning of the new school year, she said.

“If there is not enough supply to cope with the increased demand, this will lead to inflationary pressures,” Helmi told Al-Ahram Weekly.

The prices of vegetables have soared in recent weeks, with one kilo of tomatoes reaching some LE12, compared to LE2 some weeks ago, and one kilo of okra reaching LE20, up from LE10.

“I was shocked at the prices of tomatoes in the market. They were piled up in front of the vendors, with no customers buying them,” said Doaa Adel, a Cairo housewife.

According to CAPMAS, the 2.8 per cent month-on-month increase in the inflation rate in September was caused by a hike in the prices of vegetables, one of the biggest contributors to the consumer price index, by 19.2 per cent. The meat and poultry basket rose by 2.3 per cent, while the school uniforms category increased by 17 per cent.

Salwa Al-Antari, former head of the National Bank of Egypt’s research department, said in an article in Al-Ahram that the increase in Egypt’s annual inflation rate to 9.2 per cent, compared to last year, means that the cost of living has increased by the same amount.

She said that if Egyptian family income does not increase to cope with these rates, people will be pushed into a lower standard of living. The government should address the price increases because they threaten to lower the living standards of the middle classes and will deprive the poor of basic needs.

The September increase is the first in three months of slowing inflation, a trend that some analysts said would permit the Central Bank of Egypt (CBE) to cut key interest rates to stimulate growth.

“While we had expected that the sharp falls in inflation since July would prompt the CBE to cut interest rates at its meeting later this month, the latest data mean that this is now looking less likely,” said the Capital Economics research note.

Inflation had been slowing down over the past few months, after soaring due to an increase in fuel prices in mid-2014.

Helmi predicts inflation to ease in the coming months as seasonal factors like increased demand come to an end. She added that having a clear vision of the pound’s exchange rate is also crucial to slowing down inflation.

“I believe there will be a clear vision concerning the pound in the coming period,” she said.

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