Inflation rates drop again in June
Inflation rates drop again in June: Egypt’s core inflation rose to 31.95% year-on-year in June from 30.57% in May, according to a statement by the CBE on Monday. The good news is that the monthly core inflation rate dropped to 0.8% in June from 1.99% in May. Annual headline consumer price inflation rose slightly in June to 29.8% from 29.7% in May, CAPMAS said on Monday. However, the monthly inflation rate in Egyptian cities eased to 0.8% in June from 1.7% in May.
This is the second drop in inflation rates after May since the EGP was floated back in November, with consumer goods seeing the slowest rise in prices since early 2016, according to HSBC MENA economist Razan Nasser. The slowdown also beat expectations of a rise in consumer prices during Ramadan. Pharos Holding’s Radwa El Sweify said that inflation in food, which has made up a marginal 0.3% of the inflation growth, usually rises in the months preceding Ramadan. She noted that the uptick in prices was more prominent on clothes and other items that have more to do with Eid.
Do not expect such results next month: Following the fuel price hikes late last month and the electricity price hikes last week, analysts are unanimous in expecting that the slowdown in inflation rates will not continue next month. The government had expected these measures will raise inflation rates 3-4.5%. “Invariably, most goods and services are impacted by energy costs … be it in the form of energy input, transportation, feed stock,” Allen Sandeep, head of research at Naeem Brokerage tells Reuters. He expects headline inflation should rise above 35% starting in July. However, some of this could get offset if the EGP continues to strengthen.
Capital Economics takes a more optimistic note, arguing that the effects of the price hikes would not have as large an impact as expected, considering similar moves were taken last year to minimal impact. Capital Economics expects the resulting inflation to only climb 1.5%. BNP Paribas’ Pascal Devaux suggests that there are limited tools the government can take to stave off this inflation. He projects the fiscal year will end with an inflation reaching 25%.
Government much more optimistic on impact of fuel hikes: Egypt expects the monthly inflation rate to stabilize within four months at 1-1.25%, Finance Minister Amr El Garhy told Reuters on Monday. Vice Minister of Finance Mohamed Maait took it a step further and said that he expects the inflation rate to begin dropping again by August, according to Al Masry Al Youm. El Garhy tells Al Borsa that inflation is expected to drop to 16% by 4Q18. The CBE had said it was targeting lowering inflation to 13% by the end of next year.