Egypt Inflation Accelerates, Still Below Central Bank Target

Egypt’s headline inflation accelerated at its fastest pace since December but remained below the target range, making rising global bond yields a more important factor in next week’s rate decision.

The annual inflation rate climbed to 4.5% in February from 4.3% in January after two consecutive months of deceleration. On a monthly basis, consumer prices inched up 0.2%, the state-run statistics agency CAPMAS said Wednesday in a report.

Egypt’s central bank is due to make its next interest-rate decision on March 18. The Monetary Policy Committee held the deposit rate at 8.25% last month, citing the continued impact of the coronavirus pandemic and efforts to contain it on the near-term growth outlook.

“While inflation still supports a 25-50 basis points cut, I believe the central bank will leave rates unchanged due to the recent spike in U.S. treasury yields and the resulting potential threat for emerging markets,” said Radwa El-Swaify, head of research at Cairo-based Pharos Holding.

Despite the latest increase in inflation, the North African nation still has one of the world’s highest real interest rates, a ranking that’s helped attract foreign investors to the local debt market. Consumer prices are below the authorities’ target of 7%, plus or minus 2 percentage points, for the fourth quarter of 2022.

Egypt Inflation Accelerates, Still Below Central Bank Target

Core inflation, the gauge measured by the central bank that strips out volatile items, was unchanged from January at 3.6%.

Food prices fell 0.5% in February compared to the previous year and were unchanged month-on-month as supply was stable, said El-Swaify. Subdued demand due to the pandemic might also be helping to keep food prices under control, she said. Food and beverages account for the largest single component of Egypt’s inflation basket.

March is likely to bring another acceleration in inflation as Egyptians usually stock up on food ahead of Ramadan, the Muslim month of fasting. Ramadan is due to begin in April.

©2021 Bloomberg L.P.

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