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Sunday, 2 April 2017

Inflationary price to remain until November or December, gov’t considers increasing rations

The press would like you to know that it will take a while longer before inflation eases — and that the government needs to ramp up spending as a result. There was plenty of talk about inflation on Thursday and over the weekend in the context of state spending on welfare programs. The government expects inflation to ease starting in November or December, Finance Minister Amr El Garhy said on Thursday, according to Reuters. Saxo Bank is slightly more optimistic, saying it expects inflation to begin to fall within six months, according to Al Mal. The ministry expects inflation to average 15.2% in its 2017-18 budget year, Deputy Finance Minister Ahmed Kouchouk says.

This all makes sense when you’re calculating subsidy spending, but we still maintain that the month-on-month figure is the more meaningful indicator until December (ie: until after the one-year anniversary of the float of the EGP) for the rest of us. We’ll be keeping a close eye this week on inflation figures, which should be out by Thursday.

(Speaking of economic data: The central bank’s reserves figures are also due out this week, and Tuesday will see the release of the purchasing manager’s index for Egypt, KSA, and the UAE.)

The government is considering topping up monthly allowances under the ration card system by 29% to EGP 27 per person, sources told Reuters. The food subsidy current ration card system allows holders EGP 21 worth of goods each month offered at state-approved supermarkets in addition to five loaves of bread per person per day. State spending on food subsidies is set to reach EGP 86 bn in the coming budget year. Supply Minister Ali Moselhy noted the draft budget sent to the cabinet had not included such an increase in monthly subsidies and denied any plans to increase them, according to Al Shorouk. However, El Garhy said “all things are being considered…I don’t want to go into them now.”

Is cabinet mulling price controls to address inflation? That’s the claim made by unnamed government officials in an Al Masry Al Youm piece out yesterday that claims the notion will top the agenda at a cabinet meeting scheduled for tomorrow. These sources implied that these mechanisms will be part of the amendments to the Consumer Protection Act which will also be discussed at the meeting on Monday. We’re not buying it. Cabinet has been consistent in saying there would be no price controls. Prime Minister Sherif Ismail had said that the amendments to the CPA act would focus on harsher punishments for hoarders. We see the AMAY story, which got quite a lot of attention yesterday, as part of the usual pre-Ramadan paranoia about high prices.

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