Egypt's inflation drops to 9.9 percent in June

Kate Dannies
4 Min Read

CAIRO: Urban consumer inflation dropped to 9.9 percent in June, down from 10.2 percent in May, an 18-month low, according to figures released by the Central Authority for Public Mobilization and Statistics (CAPMAS) Thursday.

The drop came despite expectations that inflation pressure would continue to rise into the second half of the year due to the summer holidays and the upcoming month of Ramadan.

Though inflation levels have been steadily dropping in recent months, the consumer price index (CPI) has seen a 10 percent rise year-on-year for June from 121.5 in June 2008, to 133.6 percent.

This increase was in line with the expectations of analysts at EFG-Hermes, CI Capital and Beltone Financial, who had predicted an expansion of CPI by 9.5 to 9.9 percent, Reuters reported.

Magdy Sobhy, an economics expert at Al-Ahram Center for Strategic Studies, confirmed that analysts had agreed on the probability of dropping inflation levels through the end of the year.

He added that the prices of many goods measured in the CPI have been deeply impacted by the financial crisis.

“A lot of the merchandise by which the inflation percentage is measured are imports such as wheat, meat and dairy. These products’ prices have significantly declined in the past year, he said.

Others, however, were skeptical about the positive figures.

“I don’t trust that these statistics accurately reflect the situation in Cairo, said Gouda Abdel Khaled, an economics professor at Cairo University.

Another Cairo University economics professor, Ola El-Khawaga, pointed out that the news statistics were based on only one basket of prices.

“These figures cover certain items only and don’t indicate a generalized reduction in prices. Some prices might have come down, but not all baskets are the same, and the picture could be different if the prices of other items were taken into consideration, she said.

Cairo based investment bank Beltone Financial had previously predicted that inflation levels would drop steadily throughout the year due to a strong base effect and would therefore not be indicative of inflation pressures faced by consumers.

In a statement on the released statistics, Beltone pointed to monthly changes in CPI levels as a better indication of the real impact of price changes on consumers.

The CPI rose 0.4 percent from May, due to an increase in the prices of food products, recreation services and miscellaneous items by 0.5 percent, 4.6 percent and 0.1 percent respectively, though the prices of the items declined year-on-year for May.

Monthly changes in CPI levels peaked at 1.7 percent in April before declining again to current rates.

The Beltone statement specifically pointed to a possible rise in transportation costs between Cairo and the Nile Delta as a result of new transport regulations, which could lead to an increase in the prices of some goods in the coming months.

Food and oil prices along with shifting interest rates have also contributed to current inflation levels.

The Central Bank of Egypt cut interest rates by 50 basis points at its last meeting in June, and Beltone expects that the bank will maintain these rates through this month.

“We continue to expect that the CBE could be inclined to keep its interest rates unchanged at its next meeting on July 30, given the persistence of food inflation, and the expected emergence of inflationary pressures from other non-food items later in the year, the report stated.

Beltone predicts that inflation will average 9.5 percent for 2009 before dropping to an average of 6 percent in 2010 as higher commodity prices are subdued by the base effect.

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