Saturday,25 November, 2017
Current issue | Issue 1360, (14 - 20 September 2017)
Saturday,25 November, 2017
Issue 1360, (14 - 20 September 2017)

Ahram Weekly

Inflation on the slide

Inflation on the slide
Inflation on the slide
Al-Ahram Weekly

EGYPT’S inflation rate declined in August from its highest level in three decades in July, a change that analysts believe is an indicator that the devaluation-induced increase in prices has peaked.

The annual urban inflation rate dropped to 31.9 per cent in August from 33 per cent in July, said the Central Agency for Public Mobilisation and Statistics (CAPMAS). On a monthly basis, prices rose 1.1 per cent in August, compared to 3.2 per cent in July which witnessed slashes of subsidies on fuel and electricity.

More importantly, all of the 12 items that form the basket of commodities according to which inflation is calculated have either witnessed a decline in prices between July and August or remained unchanged. Food inflation remained the highest at 41.6 per cent year-on-year, but the change in the price of food was lower than in July when it recorded 42.3 per cent.

“The drop in inflation last month confirms that it has now passed its peak,” a report from the financial firm Capital Economics said. 

Riham Al-Dessouki, senior economist at Arqaam Capital, an investment firm, said the drop might have been because the full effect of higher electricity prices in July had not been passed through to consumers, as companies may have wanted to preserve their demand levels. She expected inflation in September and October to range between 31 and 29 per cent, before declining aggressively in November to the mid-20s on the back of a strong positive base effect and the absence of major supply shocks.

The Central Bank of Egypt (CBE) said last week it expected inflation to accelerate in the third quarter of this year before easing gradually to its target of about 13 per cent, plus or minus three percentage points, by the end of 2018, according to Bloomberg. Capital Economics expects inflation to drop sharply in the final months of 2017 as last year’s drop in the pound starts to unwind.

Consumer prices in Egypt have been shooting upwards since November when currency controls were abandoned and subsidies cut. While these measures stripped the pound of 50 per cent of its value, it helped rebuild the country’s foreign reserves to pre-2011 levels as well as attract foreign investments in treasury bills. 

According to Arqaam, the pound has been mildly appreciating, rising by 2.3 per cent since early June to LE17.7 to the dollar as a result of higher inflows from tourism, remittances, exports and direct investment and slightly calmer import demands.

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