Thursday,25 April, 2019
Current issue | Issue 1406, (16 - 29 August 2018)
Thursday,25 April, 2019
Issue 1406, (16 - 29 August 2018)

Ahram Weekly

Inflation cools

Egypt’s inflation rates have been continuing their downward trend, with core inflation dropping by some two per cent in July, reports Nesma Nowar

Inflation cools
Inflation cools

Egypt’s annual inflation rate dropped to 13.5 per cent in July from 14.4 per cent in June, the Central Agency for Public Mobilisation and Statistics (CAPMAS) said this week.

Inflation had been moving in a downward direction since the beginning of the year before it surged back upwards in June on the back of fuel and electricity subsidy cuts.

Last month, the government raised fuel prices for the fourth time since 2014 by up to 50 per cent as part of a $12 billion loan deal with the International Monetary Fund (IMF) signed in late 2016. 

However, core inflation, which strips out volatile items, fell to its lowest rate since March 2016, recording 8.54 per cent in July, from 10.9 per cent in June, according to data from the Central Bank of Egypt (CBE).

A breakdown of the data showed that the fall in inflation was driven by weaker food prices. Increases in the prices of food, accounting for around 40 per cent of the basket of goods and services used in calculating inflation rates, eased from 10.1 per cent in June to 9.7 per cent in July.

Non-food inflation also cooled, dropping from 17.6 per cent to 16.5 per cent over the same two months.

The London-based research group Capital Economics said that the decrease in inflation was a sign that the impact of the recent price hikes was starting to fade. However, the slowdown “will not be enough to prompt policy-makers to lower interest rates”, it said in a research note.

It added that the CBE’s Monetary Policy Committee (MPC) will probably wait to see the full impact of the recent price hikes before resuming its easing cycle. In the last two meetings of the MPC, the CBE has left interest rates unchanged, after cutting them in February and March by 100 basis points each time.

Overnight deposit and lending rates remain at 16.75 per cent and 17.75 per cent, respectively, with the discount rate kept unchanged at 17.25 per cent. The MPC said last month that the decision to keep rates unchanged had been taken in the light of the planned subsidy cuts.

“Even so, we think that the continued decline in headline inflation will be enough to prompt the CBE to resume their easing cycle at their following meeting in September, cutting rates by 1.5 per cent. We expect the overnight deposit rate to end the year at 13.25 per cent,” Capital Economics said.

The floating of the Egyptian pound, accompanied by fuel-subsidy cuts in late 2016, pushed inflation to a record high of 33 per cent in July 2017 before it started gradually to decrease.

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