Egypt Core Inflation Hits Post-2009 Peak Ahead of Devaluation

  • Rate accelerates to 13.9% in September from 13.3% in August
  • Earlier, headline inflation eased for first time since March

Egyptian core inflation reached its highest level since 2009 in September, as authorities prepare an expected devaluation needed to secure a $12 billion loan from the International Monetary Fund.

The key gauge of price increases for non-volatile consumer goods rose to 13.93 percent in September from 13.25 percent in August, the central bank said on its website. The rate has been hitting multi-year highs over the past five months as the Egyptian pound weakened in the black market. Month-on-month inflation was 1.39 percent in September, compared with 0.61 percent in August.

Prices are likely to rise faster as the government implements measures it committed to with the IMF to trim one of the Middle East’s highest deficits, including reducing subsidies. Some economists predict the inflation rate will reach 20 percent by the end of the year. A weaker currency is viewed as essential to end a foreign-currency shortage that has hammered business activity and kept foreign investors away.

The devaluation of the pound will push up the prices of imported goods, while further subsidy cuts could add an additional 2 percent to headline inflation, Jason Tuvey, Middle East economist at London-based Capital Economics, said in an e-mailed statement before the core inflation data.

Brief Respite

Earlier, the wider annual headline inflation measure -- which includes all goods and services -- dropped for the first time since March, to 14.1 percent in September from 15.5 percent a month earlier. That offered officials some hope of a respite from soaring prices as they prepare the economic reforms, but the drop is best explained by last year’s base figure being exceptionally high, according to Reham El Desoky, senior economist at Dubai-based Arqaam Capital.

Food and beverage prices -- the largest component in the basket of goods and services -- rose 14.8 percent, compared with 19.3 percent in August.

The government is concerned that its new measures will further squeeze already struggling lower income households, particularly after the introduction of a value-added tax last month. It has urged food companies to cut prices to ease the potential shock to consumers, while President Abdel-Fattah El-Sisi ordered his administration to ensure staples remain available and to guard against price-gouging by traders.

Egyptian officials have said they are close to meeting an IMF condition that the nation obtain several billion dollars of financing from other sources before the loan deal goes ahead, though fund chief Christine Lagarde said on Saturday that Egypt still needs to take action on its currency and subsidies before the lender’s board considers the request.

Before it's here, it's on the Bloomberg Terminal.