Inflation sees slight drop to 21.5 pct

Theodore May
5 Min Read

CAIRO: Skyrocketing inflation may be starting to slow, settling at 21.5 percent in the year to September, according to figures released yesterday by Egypt’s state-run statistics agency CAPMAS.

The 21.5 percent rate is reportedly the lowest figure released by CAPMAS since November 2007.

Urban consumer prices saw a small but notable decrease from August, when, by the same metric, prices were up 23.6 percent year-on-year.

Prices in the country as a whole, including rural areas, dropped more dramatically over the same period, from 25.6 percent year-on-year in August to 22.2 percent in the year to September.

Newly released CAPMAS data also indicated that food prices appear to be stabilizing. Food prices rose 0.1 percent in September, as compared to a 3.5 percent increase a month earlier.

The stabilization of food prices is particularly notable because it came during the consumer-heavy month of Ramadan, historically a month of significant increases in the price of food.

Other factors conspired against the rate of inflation this month, making the government’s announcement all the more surprising, wrote Beltone Financial economist Reham ElDesoki.

Contributing factors, noted ElDesoki, included a 10 percent hike in local cigarette prices, increased education costs based on the removal of the 20 percent tax exemption for private institutions, and the 60 percent increase in the price of butane canisters – a change that might have significant impact on the poor.

But despite a handful of negative indicators, the government’s efforts, a year in the making, may be paying off.

“This is a surprise. A good surprise, said Mohamed Abu Basha, an economist at Egyptian investment bank EFG-Hermes who had forecast urban inflation at 24 percent.

“If it (inflation) continues the same trend, it would be unlikely to see another hike. It depends on next month.

Egypt has only just begun to publish data for the country as a whole every month and most analysts still focus on the urban data when forecasting price growth and central bank rate moves.

The government has bumped up interest rates six separate times this year in an effort to curb inflation.

“We had argued in our Sept. 10 and 21 notes, wrote ElDesoki, “that inflation would end the year ranging between 22 percent and 25 percent, depending on the strength of inflationary pressures emanating from food, the second round effect of energy price hikes, economic growth, and the lead up to holidays later in the year.

ElDesoki did not amend the firm’s prediction on year-end inflation, instead enumerating the factors that are leading to the decline.

A Reuters poll of economists conducted earlier this year predicted that the country’s high inflation, and efforts to deal with it, would have a significant impact on GDP, bring growth below 7 percent for the 2008/2009 fiscal year.

The slowdown in growth may prove to be a tolerable outcome of this year’s inflationary mess, given the meltdown in the financial markets over the past month.

That the government has been working to curb inflation over the course of the year may help save Egypt from the worst of the global economic crisis.

Soaring food prices triggered violent protests in some areas of the most populous Arab country this year, prompting the government to raise public-sector salaries by 30 percent. It then upped fuel prices and cancelled some tax privileges to finance the wage rise.

Mathew Vogel, head of EMEA research at Barclays Capital in London, said urban inflation may have peaked earlier than expected in the year to August. He said inflation was expected to fall to “the high teens in the first quarter of 2009.

But Vogel said he still expected the central bank’s Monetary Policy Committee (MPC) to raise interest rates by 50 basis points to 12 percent for deposits and 14 percent for lending when it meets on Nov. 6.

“We also expect another (hike) of 50 basis points in the next quarter, he told Reuters. -Additional reporting by Reuters.

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