Uptick in Egypt Inflation Leaves Outlook Split on Rate Move
Egypt Inflation at Highest Since June on Education Costs
(Bloomberg) -- Inflation in urban parts of Egypt accelerated to its fastest pace in four months, an expected uptick that could make real-interest rates and Covid-19 the key factors when the central bank meets this week.
Consumer prices rose 4.5% in October, up from 3.7% the month before, as education expenses eclipsed a fall in food costs, the state statistics agency CAPMAS said Tuesday. Month-on-month inflation reached 1.8%, its quickest pace since July 2019.
A rise was predicted in the fourth quarter of 2020 due to inflation being at a low at the same time last year, with analysts divided on how the figure may impact Thursday’s rate decision. The Monetary Policy Committee has cut a combined 350 basis points this year, most of them at a March emergency meeting.
“High real-interest rates and healthy portfolio inflows over the last four months might encourage the central bank to resume monetary easing” said Radwa El-Swaify, head of research at Cairo-based Pharos Holding. She said a 50 basis-point-cut is possible.
Foreign holdings in local debt jumped to $21.1 billion in mid-October from $10.6 billion in June. And with Egypt’s real rate still one of the highest in emerging markets, a hold could encourage further inflows even amid global uncertainty.
“While the margin of real rates would remain relatively wide, we think the central bank will opt to keep rates on hold amid uncertainty about a second wave of Covid-19,” said Mohamed Abu Basha, head of macroeconomic research at Cairo-based EFG Hermes.
Tuesday’s data showed an almost 20% annual rise in the education index, reflecting cost increases as Egyptian students headed back to school. Parents have complained about rising tuition and bus fees, prompting authorities to intervene.
Food and beverage prices, which account for the largest single component in the inflation basket, fell 0.7% annually and inched up 0.1% month-on-month.
That’s likely “reflecting weak demand on the back of Covid-19’s impact on disposable incomes and a largely stable pound,” said Abu Basha.
Inflation remains well below the central bank’s target of 9%, plus or minus 3 percentage points, by the end of 2020.
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