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Wednesday, 12 September 2018

Headline inflation inches up again in August after brief slowdown in July, monthly core inflation eases to 1.8%

**#5 Headline inflation inches up again in August after brief slowdown in July, monthly core inflation eases to 1.8%: Annual headline inflation climbed to 14.2% in August, up from 13.5% in July, data from the central bank showed on Monday (pdf). Annual core inflation — the CBE’s preferred gauge, which strips away volatile items such as food — was also up in August to 8.8%, compared to 8.5% in July. Monthly headline inflation, meanwhile, eased to 1.8% last month from 2.4% the month before.

Where had we left inflation? Inflation levels had cooled slightly in July after surging to a high of 14.4% in June, accelerating for the first time in a year as the result of increases to the costs of fuel, power, and transportation in July, as the government continued to gradually phase out subsidies.

Color: The figures suggest that “inflation is not a concern anymore,” according to Pharos Holdings’ Radwa El Swaify, who tells Bloomberg that “we’re comfortably on track to achieve the central bank’s target by the end of the year.” Naeem’s Allen Sandeep told Reuters that “the uptick in August was due to the direct or indirect impact of subsidy cuts and was broadly in line with expectations,”.

You heard it here first: The central bank’s Monetary Policy Committee will leave interest rates on hold at its 27 September meeting. “If you look at the spread between the central bank’s discount rate and the headline figure it’s still three percentage points, so there’s enough room for the CBE to keep rates where they are,” Sandeep said. “Everyone is raising rates because of weaker currencies and rising inflation and so on. So we’re sort of an exception if you look at the bigger picture globally.” Conditions in global markets — including a broad emerging markets sell off, rising US interest rates, and a strengthening USD — are also expected to encourage the CBE to maintain its tight fiscal policy until the end of 2018 in order to “keep foreign investors in the debt market,” El Swaify said.

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