Egyptians are bracing for higher prices despite recent declines in food prices as the removal of subsidies on energy products will increase prices of fuel throughout the country.
As part of a plan to get Egypt through its economic reform program, Egypt plans to remove subsidies on most energy products, now sold to consumers for 85-90% of their international market price, by June 15.
While the program will raise prices for consumer it will reduce pressure on the Egyptian national budget and give authorities a chance to channel subsidy money to health care and education.
The energy subsidy cut, is part of a review of Cairo’s 3-year, $12bn loan program. The subsidy removal will raise the prices of petrol, diesel, kerosene and fuel oil. Going forward the government will begin linking the price of the less-popular 95 octane gasoline to international markets in April.
Inflation Eased in June
Egyptian inflation eased unexpectedly to the lowest levels in the past 36-months according to CAPMAS the Egyptian State-run statistic agency. The decline could provide a backdrop of lower interest rates. Consumer prices in urban parts of Egypt rose by an annual 9.4% in June, compared with 14.1% in May. On a monthly basis, food prices declined 2.2%. A rise in prices could increase the investing landscape in Egypt.
The deceleration in consumer prices in June was a function of declining food and beverage prices. Annual core inflation, which is the index that is favored by the central bank, came in at 6.4% in June, its lowest since October 2015.
The Egyptian central bank is poised to decide on Monetary policy and the subsidy reductions, will be an issue that needs to be considered. Increases in fuel prices, which ranged from 15% to 30%, are expected to ripple through the economy, affecting everything.
Since the November 2016 introduction of the economic reform, commodity prices have almost tripled. Cairo increased spending on social welfare programs to cushion the effects of subsidy cuts on the poor but many Egyptians feeling the effects.
Central Bank on Hold
Central Bank of Egypt is likely to maintain interest rates at their current level as higher fuel costs will likely be offset by declining food prices. According to Reuters, 14 out of 15 analysts said that the central bank’s monetary policy committee was unlikely to change its overnight rates, with deposits at 15.75% and lending at 16.75%. The central bank kept interest rates steady at its last two meetings, in May and March.
Scaling back fuel subsidies that have strained the Egyptian budget for decades. Egypt’s economy had been struggling to recover from the turmoil that followed its 2011 uprising. The Egyptian government had told the International Monetary Fund that it would remove subsidies entirely from most fuel products by June 15.
