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Egypt's inflation is likely to persist over coming months despite the sharp fall seen in March, experts said.
Annual urban consumer price inflation rate slowed to 33.3% in March compared with 35.7% in February despite a devaluation of the local pound last month, Egypt government data showed on Monday. The price rise was unexpectedly lower than LSEG's consensus estimate of 36.6%,
Experts advise caution as they feel the factors driving inflation upward persist within the system and price pressures still have a ways to go.
"Egypt’s headline inflation rate slowed to 33.3% y/y in March despite the near 40% fall in the pound’s official exchange rate last month. That said, the effects of the currency fall will continue to feed through over the coming months and keep inflation elevated throughout the rest of 2024," James Swanston, MENA economist at Capital Economics, said in a note.
Monthly inflation rate was 1% in March, down from 11.4% in February. Prices of food and beverage, the largest single component of the CPI basket, eased to 50.9% in March from 44.9% in February.
According to Simon Williams, economist at HSBC Bank, the prospect of further subsidy cuts and minimum wage hikes suggest that underlying inflationary pressures will persist.
"Additional price controls for the month of Ramadan may have also contributed to lower food inflation in March, which fell from 16.7% m-o-m to just 0.7% m-o-m, and accounted for much of the miss in our forecast," he said in a note.
According to Swanston, inflation will remain elevated over the rest of this year, remaining above 25% year-on-year by year-end, as the effects of the weaker pound and administered price hikes – including this month’s 9-22% increase in local fuel prices – take effect.
The Egyptian central bank on March 6 allowed the pound to fall nearly 40% against the dollar. The devaluation, a key condition of the IMF helped unlock an expanded $8 billion financial support programme for the beleaguered country. On March 22, the government also raised fuel prices, also as part of the commitment to the Fund to remove subsidies.
(Reporting by Brinda Darasha; editing by Seban Scaria)
