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Thursday, 8 April 2021

Inflation uptick as Ramadan approaches

Annual headline inflation accelerated slightly to 4.8% in March, up from 4.6% in February, state statistics bureau Capmas’ latest reading (pdf) showed. Annual urban inflation stood steady to 4.5% in March. On a monthly basis, headline inflation rose 0.6% m-o-m, compared to a 0.2% monthly rise in February. This is now the second consecutive month of inflation increase we’ve seen after it had been steadily decelerating from a five-month high of 5.7% in November to 4.3% in January.

The increase is attributed to a rise in food prices in March. On an annual basis, food prices saw an increase of 1%, Capmas notes, while increasing 1.9% m-o-m.

The Ramadan effect is in play: It is customary every year that the month preceding Ramadan witnesses a rise in inflation, Pharos Holding’s Radwa El Swaify tells us. Suppliers and producers anticipate the rise in consumer demand, and accordingly pump up prices to prepare. The import pressure for food items ahead of the holy month also contributed to the rise, CI Capital’s Sara Saada tells us.

Global commodity prices will bump inflation further: Headline inflation is expected to pick up in 2Q2021 and 3Q2021 as a reflection of a rise in global commodity prices, Beltone Financial says in an emailed statement. However, the magnitude of price increases over the next few months will be lower than in March, Saada says. Egypt is expected to end FY2020-21 (in June) with inflation averaging 4.7%, and 5% by December, El Swaify tells us.

Fuel price committee may keep prices unchanged: Petroleum products may see a hike of EGP 0.25 per liter to make up for production cuts in March 2020. However, there is a strong possibility that prices will remain unchanged, based on the government’s continued support during covid, Saada suggests. The government’s fuel pricing committee will announce 2Q2021 prices some time before this Saturday.

Interest rates are expected to remain steady, according to CI Capital, Pharos and Beltone Financial. The need to maintain the lucrative carry trade in the face of rising global yields should allow the CBE to keep rates unchanged, Beltone says. The CBE’s Monetary Policy Committee is due to meet on Thursday, 29 April to set interest rates. The MPC left rates unchanged for a third consecutive time during their most recent meeting on 18 March as inflation inched up, accounting for the possibility of a further uptick of global commodity prices.

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