Egypt Core Inflation Rises to 7-Year High as Dollar Woes PersistBy
Food and beverage prices in June climb over 33% year-on-year
Central bank reaction will be mild, EFG-Hermes economist says
Egypt’s core inflation rate, a key gauge monitored by the central bank, climbed to its highest level in seven years in June, underscoring the challenges confronting the government as it grapples with a foreign-currency crunch.
Annual core inflation, which excludes volatile items such as food, reached 12.37 percent in June, up from 12.23 percent in May and the highest since February 2009, the central bank said on its website. Headline inflation increased to 13.97 percent from 12.30 percent in May, a climb the regulator attributed to the unfavorable base effect from the previous year. Food and beverage prices climbed 33.64 percent year-on-year, reflecting typical rises during the holy month of Ramadan.
The latest inflation figures seem unlikely to trigger a reaction from the central bank, which reacted “aggressively” by raising interest rates by 100 basis points during its last meeting in June, said Mohamed Abou Basha, a Cairo-based economist at EFG-Hermes. The June data reflect the continued effect of the devaluation of the pound in March, seasonality and other factors such as higher medicine prices, he said.
Core prices continue to rise as the government tries to build up foreign currency reserves and quash a currency black market that has flourished amid a dollar shortage. The central bank’s 13 percent devaluation in March failed to make the Egyptian pound more attractive, and investors are expecting a second devaluation on Tuesday after Governor Tarek Amer said the bank was wrong to defend the pound for five years.
The currency is trading to the dollar on the black market at about a 20 percent discount from its official rate.
Abou Basha said he expected headline inflation to remain in the 13 percent range for the next couple of months before easing to 10 to 11 percent. The outlook for the second half of the year depends largely on fiscal measures planned, he said.
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