Energy subsidy cuts trigger jump in Egypt June consumer inflation
Rise in fuel, electricity and transportation fares hit economy
CAIRO, July 10, (Agencies): Egypt’s annual urban consumer inflation surged to 14.4 percent in June as cuts to energy subsidies imposed under an IMF loan deal hit the economy sooner than expected.
The speed at which June’s increases in fuel, electricity and transportation fares hit the economy surprised economists, who said interest rates could now stay high for longer.
The data, from the official statistics agency CAPMAS, followed 10 months of steady decline in the key measure of inflation, which was 11.4 percent in May.
The price hikes were part of efforts to meet the terms of a $12 billion International Monetary Fund loan programme from late 2016 that included cuts in energy subsidies and tax increases.
“It’s certainly higher than we estimated,” said Allen Sandeep, head of research at Naeem Brokerage. “It is of course for the most part taking into account the fuel subsidy cut.”
The head of research at Pharos Securities Brokerage, Radwa El Swaify, said the impact of fuel price rises appeared faster than expected.
“We had expected the 3.5 percent MoM increase in CPI to hit the July numbers, rather than June, which means that the spike in cost had reflected on prices faster than estimated.
“Consequently, we expect July monthly inflation to hit 2.5 percent to 3.5 percent, and annual inflation to score 14.5 percent to 15.0 percent, but level off gradually to 13 percent to 13.5 percent by December 2018.”
Sandeep said transport costs soared by 34.2 percent month-on-month, while utilities rose by seven percent, accounting for the bulk of the increase.
The government in May raised metro fares in a move that increased public discontent, sparking brief protests by dozens of commuters.
Core inflation meanwhile fell to a two-year low of 10.9 percent in June, from 11.09 percent in May, central bank data showed. The figure strips out volatile items such as vegetables, fruit and items with regulated prices such as fuel.
Inflation soared to a record high of more than 33 percent in July 2017 after the import-dependent country floated the Egyptian pound in November 2016. Inflation has eased since then, slowing to its lowest level in almost two years in May.
Sandeep said that month-on-month, inflation rose in June by 3.5 percent, compared to 0.2 percent in May.
“This reinforces views that monetary austerity is here to stay until year’s end,” Sandeep told Reuters.