Egypt's annual inflation falls to 11.3 pct in April

Amr Ramadan
4 Min Read

CAIRO: Egypt’s annual headline inflation declined to 11.3 percent in April 2010, from 12.2 percent in March, as the annual change in food prices, clothing, furniture, transportation and hospitality costs dropped, according to data released by the government statistics agency CAPMAS.

The monthly change in headline inflation rose, however, by 0.9 percent in April, from 0.8 percent the previous month, as the monthly change in food prices and hospitality costs rose to 1.8 percent and 0.3 percent, respectively.

The urban consumer price index for April rose to 146.4 versus 131.5 a year ago, the state statistics agency reported on its website. Reuters reported that four analysts cited forecasts for urban inflation — the most closely watched indicator of prices — that ranged from 11.3 to 12.9 percent.

“We had expected annual headline inflation would decline in April to 11.7 percent, due to the base effect, with the monthly change rising to reflect the higher change in food prices in the lead-up to Coptic Easter and the start of the emergence of a shortage in meat, which reflected negatively on meat and other protein prices,” Cairo-based investment bank Beltone Financial said in a statement.

“We expect the latter factor to have a more significant effect on May inflation.”

Analysts at the firm expected headline inflation to continue declining through July, “after which it will rebound again due to expected seasonal and one-off changes expected in the second half of the year.”

Beltone forecast annual average inflation to reach 13 percent in 2010.

The Economist Intelligence Unit (EIU) also forecasted a rise in average inflation for 2010 in the “Egypt May 2010 Country Report.”

According to the EIU, the Central Bank of Egypt (CBE) has begun to move towards making inflation targeting its main policy goal; however, it will take some time before the monetary instruments are fully in place.

The CBE has been loosening monetary policy since the beginning of 2009 on the back of a gradual deceleration in the rate of inflation, which bottomed out at 9 percent in August 2009, from a peak of 23 percent in August 2008.
The CBE last cut key rates in September 2009, when the overnight deposit and lending rates were reduced by 25 basis points each, to 8.25 percent and 9.75 percent respectively. The discount rate was left unchanged at 8.5 percent.

EIU forecasts a continued increase in inflation in 2010 but a decrease in 2011.

“Given a subsequent pick up in inflation, we believe that the CBE has now reached the end of its loosening cycle. In light of the potential inflationary impact when the government resumes its program of reducing energy subsidies, we expect the CBE to starting raising interest rates again in late 2010.”

The unit predicts inflation to average 12.3 percent in 2010 before gradually falling to 9.7 percent next year.

The CBE’s Monetary Policy Committee (MPC) decided May 6 to keep the overnight deposit rate, overnight lending rate and the discount rate unchanged.

According to a press statement on the CBE website, “the MPC assesses that inflationary pressures remain subdued and that the current level of policy interest rate is appropriate and supportive of the economic recovery while consistent with maintaining core inflation within the CBE’s comfort zone in the medium-term.”

The statement added that the MPC will continue to closely monitor all economic developments and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term.

Share This Article
Leave a comment