Egypt's headline inflation rate drops to four-year low
Urban consumer price index drops to 8.7 per cent, from 9.4 per cent a month earlier
Egypt's headline urban inflation rate fell to a four-year low in July, the country's official statistics agency, Capmas said on Thursday.
Consumer prices increased 8.7 per cent last month, down from 9.4 per cent in June. It is the lowest inflation rate recorded in the country since August 2015. The monthly inflation rate increased to 1.8 per cent, however, compared with a 0.8 per cent fall in June.
Analysts had been expecting a rise in inflation. Naeem Holding said in a note that it had anticipated an increase in inflation to 10.2 percent, and said the "unexpected' drop was due in part to an easing of demand inflationary pressures. Inflation in food and beverage prices stood at 9 per cent year-on-year, down from 10.3 per cent a month earlier. An electricity price index increased to 19.4 per cent month-on-month as a result of power subsidy cuts.
EFG Hermes analyst Mohamed Abu Basha said in a note that month-on-month, food prices increased by just 0.8 per cent, while non-food prices rose 2.8 per cent as a result of higher fuel and electricity costs.
"We see today’s inflation print increasing the chances for a rate cut in August, as it provides yet another signal that inflation is further normalising, especially with fiscal consolidation achieved and global oil prices trading lower," said Mr Abu Basha.
Power subsidy cuts have been introduced as part of a package of economic reforms linked to a $12 billion loan that Egypt received from the International Monetary Fund in 2016. The reforms also included a free float of Egypt's currency, which led to soaring inflation in the Arab world's most populous nation. Headline inflation hit 33 per cent in July 2017 before gradually declining to 12 per cent at the end of last year, according to central bank figures.
Last month the IMF completed its three-year review with Egypt and extended the final $2 billion of the $12 billion loan package to the country. In a statement, the fund's acting managing director David Lipton said Egypt's economy had "improved markedly since 2016, supported by the authorities’ strong ownership of their reform program and decisive upfront policy actions". He described the outlook for Egypt as "favourable".
On Thursday Egypt's central bank said it would introduce a new interest rate benchmark providing an interest-free overnight rate. According to Bloomberg, the bank said the new Cairo Overnight Index Average benchmark was aimed at deepening money, capital and derivative markets in Egypt. The new overnight rate will be introduced in October.
The bank currently sets separate rates for deposits depending on the length of time they are held.
Updated: August 8, 2019 01:40 PM