Egypt’s in­fla­tion cools as food prices sta­bilise

The Daily News Egypt - - Front Page - By El­sayed Soly­man

Egypt’s an­nual in­fla­tion con­tin­ued its down­ward tra­jec­tory in October as food prices cooled for the sec­ond month in a row.

An­nual ur­ban head­line in­fla­tion inched down to 31.6% in Septem­ber 2017 from 31.9% in Au­gust, as de­mand driven pres­sures dis­si­pated and the im­pact of en­ergy and util­ity price changes ta­pered off.

The ef­fect of sea­sonal (school year start) and one-off (mo­bile fees hike) fac­tors ap­peared to be lim­ited in Septem­ber, ac­cord­ing to a re­cent re­port by Arqaam Cap­tial.

Monthly in­fla­tion sta­bilised at 1% in Septem­ber, com­pared to 1.1% the month be­fore, while the monthly change in food in­fla­tion slowed to its low­est level of 0.4% since Jan­uary 2016, re­flect­ing the low­est de­mand driven change since the start of the FX crunch and fis­cal shocks cy­cle.

“Head­line in­fla­tion is pro­ceed­ing as ex­pected, com­par­ing with our pro­jec­tion of 31.3%.We ex­pect in­fla­tion in October to de­cline to 30%,be­fore drop­ping more ag­gres­sively in Novem­ber to the mid-20s per­cent­age range and end­ing the year at 21-22% on the back of a strong pos­i­tive base ef­fect and ab­sence of ma­jor sup­ply shocks,” said Re­ham El De­souki from Arqaam.

“While a De­cem­ber in­ter­est rate cut is likely, we be­lieve Fe­bru­ary 2018 a more likely sce­nario with a 200 bps cut, fol­low­ing Jan­uary in­fla­tion, and to cap­ture the full ef­fect of the cur­rent mon­e­tary tight­en­ing on liq­uid­ity and credit growth,” she added.

An­other re­search note by Cap­i­tal Eco­nomics Lon­don said, “Look­ing ahead, we ex­pect in­fla­tion to fall more sharply in the fi­nal months of this year.The im­pact of the 50% drop in the pound against the dol­lar since it was floated in Novem­ber 2016 – which pushed up the cost of im­ported costs – will fade. In ad­di­tion, the ef­fects of sub­sidy cuts and tax hikes will also start to fall out of the an­nual com­par­i­son.We ex­pect head­line in­fla­tion to fall to around 23% y/y by De­cem­ber.”

Ac­cord­ing to the re­port, this will pave the way for the Cen­tral Bank of Egypt (CBE) to start cut­ting in­ter­est rates.

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