Inflation rates match expectations, back to downtrend in August



Wed, 11 Jul 2018 - 08:54 GMT


Wed, 11 Jul 2018 - 08:54 GMT

A shopping trolley is pushed around a supermarket - Reuters

A shopping trolley is pushed around a supermarket - Reuters

CAIRO – 11 July 2018: Egypt’s statistic body announced Tuesday the inflation rate in June which represented a decline on a yearly basis and an increase on the monthly basis, matching the expectations of research and economic associations.

The Central Agency for Public Mobilization and Statistics (CAPMAS) announced that annual consumer price inflation slipped to 13.8 percent in June 2018, from 30.9 percent in the same month of 2017.

On a monthly basis, inflation increased 2.9 percent in June, compared to the previous month, to record 282.7 points, CAPMAS said.

Pharos Holding attributed the monthly rise to the fuel subsidy cut that happened in mid-June, expecting that the enacted fuel price increases will fully impact prices in July, in addition to the impact of the hike in electricity price that will reflect on July bills.

The Cabinet announced on June 16 cutting the fuel subsidies, to lower the fuel subsidy to 25 percent now.

The new prices are Gasoline 95 prices went up from LE 6.6 ($ 0.37) per liter to LE 7.7, while 92 octane gasoline prices amounted to LE 6.75 instead of LE 5 per liter. Prices of gasoline 80's liter increased to LE 5.5 instead of LE 3.65.

Pharos further anticipated the annual inflation rate to accelerate from 12.7 percent in the fourth quarter of fiscal year 2017/2018 to 14.6 percent YoY in first quarter of 2018/19, believing it to decelerate again to 13.9 percent YoY in the second quarter of 2018/19.

As per interest rates, Pharos saw that the Central Bank of Egypt would keep the rates unchanged till November’s meeting, when monthly inflation numbers would have declined and any potential cuts at that time will be linked to global markets’ developments (US interest rates, USD strength and the magnitude of exits from emerging markets).

Beltone Financial also agreed with Pharos that cutting subsidies pushed inflation rates up; reflecting on prices of transport which rose 55 percent, and housing and utilities that hiked by 18.4 percent.

It is also expected this quarter to witness a continued rise in inflation on a monthly basis due to seasonal Islamic and summer holidays, but at a slower pace with relatively slower consumption as a result of pressures on income.

“We also expect an average monthly rise of 2 between June and September 2018,” Beltone stated.

It also believed that inflation in June will be the highest rate during the second half of 2018, which remains within the target range of the central bank at 13 percent (+/- 3 percent) by the end of 2018.

It further affirmed that CBE will keep the interest rates unchanged during August meeting and the upcoming three meetings in 2018 as returns rose recently to 19.4 percent, which keeps the Egyptian fixed income market attractive among emerging markets.

Capital Economics still thinks the interest rate will be downed in the next meeting.
Agreeing with other associations, Capital Economics attributed the rise of inflation to subsidy cuts.

“Inflation may rise a little further in July on the back of electricity price hikes that came into effect at the start of this month,” Capital Economics said in a report. “Even so, we doubt that higher inflation will prompt the Central Bank of Egypt (CBE) to raise interest rates at its meeting in mid-August.”.

The report expected the inflation rate to return to its downtrend in August, allowing CBE to continue its easing cycle.

“We expect another 350bp of rate cuts, taking the overnight deposit rate to 13.25 percent by the end of 2018,” according to the report.

Fitch Rating also expected that inflation in Egypt will fall but will remain in double digits, averaging around 13 percent, assuming that subsidy reform in July will lead to energy price increases, given the increase in oil prices.

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) kept interest rates unchanged for the second time this year during June meeting, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.

MPC also kept the interest rates unchanged in May after lowering them twice earlier this year by 1 percent each time.

On March 29, the committee set the overnight rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively. In February, the committee lowered the interest rates by 1 percent for the first time since the flotation of the Egyptian currency in November 2016, after inflation rates slowed down.

The Egyptian government expected inflation to decline by the end of 2017/2018 from 17 percent to 13 percent, according to former Minister of Finance Amr el-Garhy.



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