Egypt annual inflation eases for 1st time since flotation

CAIRO – 8 June 2017: Egypt’s annual urban inflation declined to 30.9 percent in May, compared to 32.06 percent by the end of April, state statistics body announced Thursday.

Recording the first drop in six months, the urban consumer inflation also fell to 29.7 percent in May year-on-year, down from 31.5 percent in April, the Central Agency for Public Mobilization and Statistics (CAPMAS) said.

The food and beverage basket hiked 1.9 percent in May on the monthly level, while it leaped 41.6 percent on the annual level. The rise was no surprise as food and beverage consumption usually increases in the holy month of Ramadan.

The Consumer Price Index (CPI) hiked 1.6 percent in May, compared to 1.8 percent in April and 2.1 percent in March.

May’s inflation rate is evidence that the inflationary effects of the flotation of the Egyptian pound in April “started to fade,” Jason Tuvey, economist at London-based economic research consultancy Capital Economics said Thursday.

Possible subsidy cuts at the beginning of the new fiscal year in July and full application of the value-added tax may cause another jump in inflation, Tuvey said.

“Overall, though, we think the general trend over the next twelve to 18 months will be towards weaker inflation,” he pointed out.

Capital Economics expects a reduction in the interest rates to come at the end of 2017, to serve a long-term target of 13 percent inflation by the end of 2018.

In a move to curb inflation, the CBE decided in late May to increase the overnight deposit and lending rates by 200 basis points from 14.75 percent to 16.75 percent, and from 15.75 percent to 17.75 percent, respectively.