Egypt’s Inflation at Lowest in 10 Months as Food Prices Ease

Annual inflation in urban parts of Egypt eased to its lowest level since October 2019 as food prices fell, although it’s unlikely to prompt any imminent cut in interest rates.

The annual rate in August slowed to 3.4%, compared with 4.2% the month before, the state-run statistics agency CAPMAS said Thursday. Food and beverage costs, which account for the largest single component of the inflation basket, dropped an annual 4.1%. On a month-on-month basis, prices fell 0.2%.

The decline probably won’t spur the central bank to trim its benchmark rate when the Monetary Policy Committee meets Sept. 24, according to Radwa El-Swaify, head of research at Cairo-based Pharos Holding.

“Stability in interest rates, at this point, is a normal conclusion,” she said. Although there’s room for a reduction, authorities may want to keep a competitive real interest-rate for portfolio investments and also factor in a possible quickening of inflation later in the year due to the base effect, she said, adding that the slowdown was greater than Pharos had projected.

Central bank Governor Tarek Amer said on Sept. 7 that he expected inflation to average 6.2% in the last quarter of 2020. That’s within the bank’s target range of 9%, plus or minus three percentage points.

Core inflation, the gauge measured by the central bank that strips out volatile items, accelerated to an annual 0.8% in August from 0.7% the previous month.

Egypt has weathered the impact of the Covid-19 pandemic better than many countries. Economic growth forecasts have been revised down, but still show expectations of an expansion. At the same time, companies have clearly been impacted. The Purchasing Managers Index edged down slightly in August, with continued job losses a significant factor, according to IHS Markit.

Lending initiatives the central bank introduced to support companies and industries may also lessen the need for an imminent rate cut, according to Mohamed Abu Basha, head of macroeconomic research at Cairo-based EFG-Hermes investment bank. They’re already able to borrow at 8% -- significantly lower than the market rate.

Authorities would “rather wait and see how events unfold,” he said, referring to any further impact on tourism revenues, worker remittances and portfolio investments, as well as any possible second wave of the coronavirus.

©2020 Bloomberg L.P.

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