Tuesday, 10 August 2021

Inflation hits 2021 high but still rises below expectations

Annual urban inflation accelerated in July on the back of rising energy and food prices, according to official figures from state statistics body Capmas. The headline urban rate climbed to 5.4%, up from 4.9% in June, as the government hiked fuel and electricity costs. Headline prices rose 0.9% on a monthly basis, compared with a 0.2% rise in June.

Housing and utilities prices accelerated to 4.1% annually and 2.4% from June in response to the higher energy costs. Food and beverage prices, the largest component in the basket of goods, rose 4.8% on an annual basis, and 0.5% on a monthly basis, while tobacco increased 2.9% after prices were hiked at the beginning of the new fiscal year. Transport (6.6%, and recreational and cultural activities (12%) also became more expensive in July.

This is the highest headline inflation rate recorded since the start of the year — and marks the first time since January 2020 that inflation has risen into the CBE’s target range, which currently stands at 7% (±2%) on average by the fourth quarter of 2022.

Overall annual inflation shot up to 6.1% as it continued to pull away from the urban rate, up from 5.3% in June, rising 1% on a monthly basis in comparison with 0.3% in June.

Core inflation at near two-year high: Annual core inflation rose to its highest level since August 2019, accelerating to 4.6% in July from 3.8% the month prior, central bank figures (pdf) show. Monthly core prices rose to 0.6% from -0.1% in June. Core inflation strips out volatile items such as food and fuel.

The headline figure came below analysts’ expectations despite rising for the third month running. The rise came in below Beltone Financial’s expectation of a 6% increase, and Pharos’ 5.6% forecast.

Prices will likely keep on pushing up: Inflation will continue to gain momentum in the second half of the year “as the rise in global commodity prices starts to reflect gradually in the domestic market coupled with base effect,” Beltone’s chief economist Alia Mamdouh wrote in a note this morning. Her statement was echoed by EFG Hermes’ head of macroeconomic research Mohamed Abu Basha, who told Bloomberg that “minor inflationary pressure remains on the cards.” Expectations are that late July’s hike in fuel prices will show in August’s numbers, while analysts are also braced for the impact of any potential rise in the price of subsidized bread.

Central bank to hold rates through 2021? The chances are that the central bank will continue to keep interest rates on hold at its next meeting in September, Mamdouh wrote, citing the need to maintain Egypt’s high real rates as other emerging markets tighten policy. Meanwhile, Abu Basha said that the central bank may leave rates unchanged for the rest of the year. Prime Holdings and Renaissance Capital are also predicting rates to stay the same until 2022. The CBE left rates on hold for a sixth straight meeting last week, meaning the overnight and lending rates will remain at 8.25% and 9.25% respectively until at least September.

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