CAIRO: In line with market expectations, Egypt s consumer price index (CPI) eased to 6.9 percent year-on-year in November from 7.5 percent in October, however, inflationary pressures continue to loom until year-end.
“While we believe that the gradual decline of the CPI is a positive development, inflation will remain high, in our opinion, in the lead up to a series of religious holidays during which food prices rise, Beltone Financial told Daily News Egypt.
According to the Central Agency for Public Mobilization and Statistics (Capmas), month-on-month, the CPI had only risen 0.5 percent last October, compared to a monthly rise of 1 percent in September. Yet, the government statistics agency started last September using a new CPI, rendering the index more sensitive to any change in food prices. The weight given to food and non-alcoholic beverages rose to 44 percent in the new CPI, compared to 39 percent in the previous CPI.
“[Hence], we expect inflation to remain high, ranging between 6-8 percent, with possible upward revisions when the government restructures subsidies again, especially on energy products.
Food prices on the market have started to surge in preparation for the upcoming Eid El-Adha religious holiday. For example, cooking oil soared to LE 7 per kilogram, and rice to LE 3 per kilogram.
One way experts suggest to balance prices is for the government to monitor markets and determine prices as well as profit margins to ensure they are kept under a reasonable ceiling.
“The current chaos that is happening in our markets is [unbearable], Samir Radwan, executive director of the Egyptian National Council for Competitiveness, said. “The government has to monitor prices as well as intervene to put an end to [opportunistic] price increase and monopoly practices.
The country’s inflation rate has recently been swinging. Inflation rate peaked to over 12 percent last winter after a surge in gasoline prices – due to subsidy cuts – coupled with an outbreak of bird flu. The economy later recovered, and inflation took a downward trend to settle just under 8 percent last July.
However, Egypt’s economic growth, seasonal Ramadan shopping sprees, and a recent depreciation in the value of the dollar sparked inflation to rise 8.5 percent in the year to August and a further 9.3 percent in September.
“Generally, with the effect of the supply shocks in 2006 and 2007 running its course, we believe inflationary pressures currently stem from the cyclical changes in food prices and economic growth, Beltone Financial said.
The Central Bank of Egypt (CBE) attributes high inflation to a rise in CPI, which measures the average price of consumer goods and services purchased by households. The percent change in the CPI is a measure of inflation.
The CBE issued a monthly report tracing total local government debt at LE 478.2 billion end of last June, recording an increase of LE 90 billion a year earlier. The bank also cited an LE 2.9 billion retreat in debt of state-run entities to reach LE 44.5 billion.
In its annual report on Egypt, Moody s Investors Service says Egypt’s external position is strong due to high oil income, tourism receipts and revenue from the Suez Canal. External debt has declined to manageable levels and foreign reserves have been going up.
The public budget accounts register large deficits, although the fiscal deficit relative to GDP has been going down from its 9 percent peak in 2005, said Moody s Vice President Sara Bertin-Levecq, author of the report, in a statement to the press.
Then again, at above 7 percent [of GDP] in 2007, the deficit remains high due to structurally stubborn expenditures, she added. “The financing needs of the government in the domestic market represent a concern in the context of rising inflationary pressure and the relatively weak effectiveness of monetary policy.
While real GDP growth may slow down slightly this year and in 2008, Bertin-Levecq said that ongoing reforms are starting to generate a virtuous circle, and we therefore expect real GDP to grow at consistently healthy rates over the medium term.
