Egypt Annual Inflation Eases for First Time Since Pound Float

CAIRO (Capital Markets in Africa) – Egypt’s monthly inflation rate held steady in May, offering new indications that the price surges triggered by last year’s decision to lift foreign exchange restrictions were plateauing as the government pushes ahead with economic reform efforts.

The month-on-month urban inflation rate rose 1.7 percent , unchanged from April. The annual rate eased to 29.7 percent from 31.5 percent in April, its first reversal since October, the month before the floating of the pound, according to data posted on the website of the state-run statistical agency, CAPMAS. The central bank’s move on Nov. 3 to lift currency exchange restrictions sent prices soaring, with the increases further pressuring a nation where around half of its 93 million residents live near or below the poverty level.

“The drop in the annual figure in May is probably temporary, and is mainly driven by the stability of the exchange rate used to calculate customs,” said Reham El Desoki, senior economist at Dubai-based Arqaam Capital. “The stagnation of the monthly rate, however, shows that inflationary pressures are still there.”

The International Monetary Fund, which approved a $12 billion lifeline to Egypt after the decision to float the pound, has voiced concern about inflation. The central bank last month raised the benchmark interest rate by 200 basis points, in a move it said was aimed at curbing the rise in prices.

Annual food and beverage prices, which make up the largest single component of the inflation basket, rose 41.1 percent in May, and accelerated by 2 percent month-on-month. The increases came as Egyptians readied for the holy month of Ramadan, a time when food costs typically climb.

El Desoki said she expects the easing in the inflation rate will reverse course in June due to Ramadan, and could continue to rise in July as a result of expected increases in electricity prices and the effect of the increase in the rate of the new value-added tax.