Friday,28 April, 2017
Current issue | Issue 1340, (13 - 19 April 2017)
Friday,28 April, 2017
Issue 1340, (13 - 19 April 2017)

Ahram Weekly

Inflation easing down

After a period of high inflation, price increases are moving at a slower pace, reports Sherine Abdel-Razek

Inflation easing down
Inflation easing down

The rate of price increases month-on-month is showing signs of cooling off, with Egypt’s inflation rate in March registering 2.1 per cent compared to 2.7 per cent in February. This is compared to 4.07 per cent in January.

Meanwhile, the annual rate, compared to March 2016, came in at 30.9 per cent compared to 30.1 per cent in February, its highest level in 30 years. However, March’s annual inflation rate recorded the slowest pace of acceleration since the floatation of the pound in November.

The bulk of the increase came on the back of higher food prices, which account for 40 per cent of the basket of goods used to calculate inflation. Food increased by 41.8 per cent year-on-year in March.

Things look better on a monthly basis. While the contribution of fruit and vegetables to monthly inflation rose from 0.8 per cent in February to 1.2 per cent in March, the contribution of other food items declined and that of non-food items was almost stable.

Inflation has been on the rise since the floatation of the pound, which led to the local currency losing almost 50 per cent of its value against the dollar. This has pushed up the cost of imports, and firms have passed the extra burden to consumers.

The situation has been further exacerbated by a reduction in government subsidies and the introduction of a new value-added tax (VAT). These steps were taken as part of a reform programme aimed at acquiring an IMF loan of $12 billion.

According to the consultancy Capital Economics, the effects of these measures are likely to prove temporary and inflation should peak soon. It added that inflation data suggests that price pressures are starting to ease as the output price component of the whole economy Purchasing Managers Index (PMI) fell to an eight-month low in March.

The Index measures the performance of the non-oil private sector and is derived from a survey of 450 companies.

However, seasonal factors might not be in favour of consumers. A research note by Pharos, an economics consultancy, stated that two seasonal triggers could affect the monthly inflation rate in April and May: the holy month of Ramadan, which traditionally witnesses an inflation rate acceleration, and the wheat harvest, which tends to diffuse sharp food price movements.

Following the meeting of President Abdel-Fattah Al-Sisi with IMF Managing Director Christine Lagarde last week in Washington, the IMF issued a statement quoting Lagarde as saying that the fund was working with the Egyptian government and the Central Bank of Egypt (CBE) to “bring inflation under control and support the steps the Egyptian authorities are taking to protect its poorest and most vulnerable citizens”.

“Egypt is implementing a strong economic reform programme to help the economy return to its full potential, achieve more growth, and create more jobs. We recognise the sacrifices made and the difficulties faced by many Egyptian citizens, especially due to high inflation,” Lagarde said.

Many people are now suffering under the burden of price increases, a fact that became evident last month with the demonstrations of thousands of people in different governorates against a decision to reduce the number of subsidised bread loaves distributed on the ration-card system.

The government is planning further reductions in subsidies in coming years to tighten the country’s budget deficit. 

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