Analysts expect Egypt’s inflation to drop further

CAIRO – 10 October 2017: Egypt’s inflation is expected to continue droppingin the coming months, allowing the Central Bank of Egypt (CBE) to consider cutting interest rates, London-based think-tank Capital Economics said Tuesday.

Egypt’s annual urban consumer price inflation eased slightly in September to 31.6 percent from 31.9 percent in August, the official statistics agency, Central Agency for Public Mobilization and Statistics (CAPMAS) said Tuesday.

“We think the first rate cut is likely to come as soon as the Monetary Policy Committee’s meeting on December 28witha penciled in 100-basis point cut, taking the overnight deposit rate to 17.75 percent,” the note said.

In the research note, Capital Economics said that inflation has now shrunk for two consecutive months for the first time since early 2016.

The report expected inflation to fall more sharply in the final months of 2017, as the effect of the flotation of the Egyptian pound will start fading.“In addition, the effects of subsidy cuts and tax hikes will also start to fall out of the annual comparison. We expect headline inflation to fall to around 23 percent year-on-year (YoY) by December,” it furthered.

September’s inflation is affected by natural gas, drinking water, and sewage charges, economist at Pharos HoldingRamyOraby said in a Tuesday research note.
The contribution of food items, excluding fruits and vegetables, came at a negative value (-0.2 percent) in September for the first time since July 2016, Oraby added.

Pharos Holding expected the annual inflation rate to decelerate from 32.2 percent in the first quarter (Q1) of FY2017/18 to 26.5 percent YoY in Q2 FY2017/18, and 13.6 percent YoY in Q2 FY2018/19.

In its first review published in late September, the International Monetary Fund (IMF) flagged high inflation and fiscal pressures from energy subsidies as main challenges facing the Egyptian government.