Tuesday,17 July, 2018
Current issue | Issue 1389, (12 - 18 April 2018)
Tuesday,17 July, 2018
Issue 1389, (12 - 18 April 2018)

Ahram Weekly

Inflation continues to ease

Inflation
Inflation
Al-Ahram Weekly

EGYPT’s annual urban inflation fell to 13.3 per cent in March from 14.1 per cent in February, the lowest level since May 2016, the Central Agency for Public Mobilisation and Statistics (CAPMAS) said this week.

Inflation has been moving in a downwards direction for eight consecutive months, coming closer to the Central Bank of Egypt’s (CBE) target range of 13 per cent ±3 per cent for the end of the 2017/18 fiscal year.

However, on a monthly basis, it increased one per cent in March to 269.8 basis points, compared to 267 in February. CAPMAS attributed the increase to a hike in the prices of goods including vegetables, fruit, meat and poultry, among others.

A breakdown of the data showed that the fall in inflation last month was broad-based, with food inflation, accounting for 40 per cent of the basket of goods used to calculate the inflation rate, declining by one per cent in March to 11.8 per cent, the lowest since September 2015.

London-based research group Capital Economics attributed the decline to the unwinding impact of the Egyptian pound’s 50 per cent devaluation against the US dollar in November 2016 following the CBE’s decision to float the local currency.

The floatation accompanied by fuel subsidy cuts pushed inflation to a record high of 33 per cent in July 2017, after which it started to decrease. The further decline in inflation last month means that the CBE will continue its easing cycle on interest rates, Capital Economics said, projecting another 100 basis points reduction during the CBE’s Monetary Policy Committee (MPC) meeting in mid-May.

In the MPC meeting in March, the CBE cut interest rates for the second time this year, lowering the overnight deposit rate to 16.75 per cent from 17.75 per cent and the overnight lending rate to 17.75 per cent from 18.75 per cent.

Capital Economics said that the expected subsidy cuts at the start of the new fiscal year, beginning on 1 July, could push up inflation for a month or two but would not stop the broader trend of easing price pressures over the coming years.

“A pause in the easing cycle is possible at June’s MPC meeting as policy-makers await details of subsidy cuts. But a substantial and prolonged easing cycle is still likely, and we expect the overnight deposit rate to end this year at 13.75 per cent, whereas the consensus expects it to fall to 14.25 per cent,” Capital Economics said in a research note.  

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