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Egypt's inflation eases in February as prices stabilize - Daily News Egypt

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Egypt’s inflation eases in February as prices stabilize

CAIRO: As food price inflation decreased to 18.2 percent in February from 18.9 percent the previous month, annual urban inflation also fell slightly to 10.7 percent from 10.8 percent in January, according to the latest CAPMAS figures. “We expected inflation in February 2011 to accelerate to a higher monthly increment of around 0.8 percent as …


CAIRO: As food price inflation decreased to 18.2 percent in February from 18.9 percent the previous month, annual urban inflation also fell slightly to 10.7 percent from 10.8 percent in January, according to the latest CAPMAS figures.

“We expected inflation in February 2011 to accelerate to a higher monthly increment of around 0.8 percent as the impact of the daily curfew; the disruption of domestic transportation and fuel supplies; the temporary closure of businesses and factories, and acts of vandalism that extended to a number of retailers and shopping outlets at the early days of the revolution would have all led to a broad-based shortage in the availability of some products and, in particular, food items,” Cairo-based investment bank Beltane Financial said in an emailed statement.

“But prices have gradually stabilized and returned to normal levels in the latter end of the second week of February, as the curfew eased and security gained some ground,” the statement read.

There was a slight 0.1 percent increase month-on-month in actual general price levels compared to January, showing that the price of goods and services was relatively stable during the month in which Egypt witnessed mass nationwide protests that led to the ousting of former president Hosni Mubarak.

Continued sector protests related mainly to wages and work conditions also resulted in disruption of business activity in both the private and public sectors, causing banks to close for days and maintaining the stock market closure for well over a month.

The CAPMAS figures published Thursday show that the price index for urban consumers rose in February to 10.68 percent year-on-year, increasing to 110.9 from 100.2.

Month-on-month, the main price increases in urban areas were in the telecommunications and restaurants and hotels price indexes gaining 2.9 and 0.7 percent, respectively. The main increases in the price indexes year-on-year were topped by food and beverages at 18.2 percent, alcoholic beverages and tobacco at 46.9 percent, education at 24.6 percent and restaurants and hotels at 12.7 percent.

Magda Kandil, director of the Egyptian Center for Economic Studies, said there is likely to be a price increase in food inflation in the months to come due to rising international prices attributed to global recovery and higher fuel prices as well as lower exchange rate increasing the price of imports.

Domestically, Kandil said prices will rise as demand recovers and in light of expected supply shortages attributed to the unrest.

Commenting on the annual rise in food price inflation, she said higher food inflation is likely to raise headline inflation, given its high weight in the CPI basket (40-50 percent), and there is also a lagged effect: As the price of food increases, the transmission mechanism is usually fast to other prices, non-food items, increasing inflationary expectations.

Core annual inflation eased to 9.51 percent in the year to February from 9.74 percent in January, the central bank said Thursday. Core inflation strips out subsidized goods and volatile items including fruit and vegetables, Reuters reported.

“Recent measures taken by the CBE to ensure the availability of certain food items in the local market, such as extending the exemption of red meat, poultry and sugar from imports’ cash cover for another six months until the end of 2011, and announcements that stocks of key food items such as wheat, rice, cooking oil and sugar are sufficient to cover demand for a period of four to six months, may help curb increases in prices in the local market led by shortages,” Beltone said.

The finance ministry’s Monetary Policy Committee will meet late Thursday to decide on the nation’s interest rates, which many analysts expect to remain unchanged.

Kandil is in favor of maintaining rates unchanged “given fragility in economic activity.”

“We need to preserve the momentum of recovery. If inflation, attributed to rising demand, proves to be a problem going forward, the central bank could proceed to raise the interest rate. In the meantime, the best defense strategy against inflation is to address bottlenecks in distribution and ease regulations on imports,” she said.

“Continued effort by the central bank to arrest depreciation pressures on the pound, via intervention, should help,” she added.

Beltone forecasts inflation in Egypt to average 11.3 percent in the current fiscal year and rise to 13.9 percent in fiscal year 2011/12 on the back of food price inflation.

Simon Williams, chief economist at HSBC Middle East, told Reuters: "I’m surprised by the reading. Although growth has slowed sharply, I expected the disruption that came with the political turmoil to push prices upward.”

He was one of six economists polled by Reuters who expected the central bank to keep its benchmark interest rates steady after its meeting on Thursday afternoon.

The benchmark overnight deposit rate is 8.25 percent and the overnight lending rate is 9.75 percent.

Finance Minister Samir Radwan said Thursday the economy may grow as slowly as 3 percent in the year to the end of June if production does not get back on track, Reuters reported. The figure is down from 6 percent forecasts before the revolution.

"Our estimates in the Finance (Ministry) currently is a growth rate between 3.5 to 4 percent in the current year, which might be closer to 3 percent in the event the production stoppage continues, as is it currently is," he told reporters.

"There is a $3 billion deficit in the balance of payments and Egyptian exports have been reduced by 40 percent since the time of the revolution till now," Radwan said at a news conference.

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