Egypt’s heady inflation drops as election season approaches
CAIRO (Reuters) – Egypt’s annual inflation rates dropped in December to their lowest levels since the country floated its pound currency in November 2016, sending prices shooting up.
Bringing down inflation is key for President Abdel Fattah al-Sisi, who has yet to announce his intention to run for a March election but is expected to win another term.
Urban consumer price inflation eased to 21.9% in December yearon-year from 26% in November, with its month-on-month rate falling to -0.2%, the first time prices decreased since December 2015, according to official data.
Core inflation, which strips out volatile items such as food, fell to 19.86% in December from 25.53% the previous month.
“The drop is positive and supports our expectations of lower inflation ahead, toward our 18% forecast in the first quarter of 2018,” CI Capital senior economist Hany Farahat said.
Inflation reached a record high of 35% in July after energy subsidies were cut in line with reforms agreed to with the International Monetary Fund for a $12 billion loan. But it has gradually eased since then.
Egypt’s finance minister said on Wednesday he expected the rate to fall below 20% next month and to 10%-12% during 2018 before falling below 10% in 2019.
Egypt’s central bank has raised key interest rates by 700 basis points since November 2016 in an attempt to ease soaring inflation.
Economists expect the bank to start cutting rates in coming months as inflationary pressure eases. The central bank’s next monetary policy meeting is on February 15.
“We expect a 200-basis-points cut in interest rates could occur at the MPC meeting on February 15,” Arqaam Capital senior economist Reham El Desoki said.
Desoki expected a hold in the March and May meetings and a hike of 200 basis points in June following further cuts in energy subsidies.
Egypt hiked fuel prices by up to 50% in June and electricity prices by up to 42% in July in an effort to tighten its spending as part of the three-year IMF deal. Another wave of energy cuts is expected this year as per the recommendation of the IMF.
Sisi has to balance between pushing with economic reforms to revive an economy hit hard by political turmoil and maintaining support to win the upcoming election.