Egypt Prices Rise at Slowest Monthly Pace Since Pound Float

  • Consumer prices rise 1.7% in April, compared with 2% in March
  • Analyst says continued monthly fall shows rate hike not needed

Egypt’s monthly inflation rate fell for a third month, giving the government breathing space as it prepares to accelerate reforms that caused prices to surge and weakened the pound by more than half against the dollar.

Consumer prices rose 1.7 percent in April from a month earlier, the slowest pace since October -- before the central bank floated the currency and raised interest rates as it tried to end a dollar shortage and secure a $12 billion International Monetary Fund loan. Annual urban inflation accelerated to 31.5 percent from 30.9 percent in March, according to data from Egypt’s official statistics agency released on Wednesday.

Core inflation, which strips out regulated and volatile items, eased to 32.1 percent in April on an annual basis from 32.3 percent, according to data posted by the central bank. The monthly rate edged up to 1.1 percent from 1 percent.

The inflation spike since the government removed currency controls in November has presented a major challenge for policy makers, who are keen to push ahead with economic restructuring agreed with the IMF but are wary of putting excessive strain on citizens -- nearly half of whom live near or below the poverty line. Officials have said the rate is peaking and would taper off toward the end of the year, and have also tried to head off the usual price increases in the upcoming holy month of Ramadan by boosting food subsidies.

The continued decline in the monthly rate “indicates that the shocks from the flotation and increase in fuel price have tapered off,” said Reham El Desoki, senior economist at Dubai-based Arqaam Capital. “Now the inflation rate will behave normally, going up or down depending on seasonal factors, and subject to shocks such as further subsidy cuts.”

The IMF has said it’s working with Egypt’s government to curb inflation, and fund officials have suggested that raising the benchmark interest rate may be needed to achieve that. The view is not universally shared, though. Analysts including El Desoki have argued that higher borrowing costs wouldn’t have the desired effect because inflation has not been driven by consumer demand.

“These figures confirm that there is no need to raise interest rates, as the shocks have subsided,” El Desoki said.

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