Inflation rates in Egypt have started to show the effects of the recent devaluation of the pound, Sherine Abdel-Razek reports
The monthly inflation rate increased in March by 1.4 per cent, reflecting the early effects of the devaluation.
Figures compiled by the Central Agency for Public Mobilisation and Statistics (CAPMAS) reveal that the increase was fed by a hike in the prices of rice, meat and pharmaceuticals by 10.7 per cent, 2 per cent and 7.7 per cent, respectively.
Meanwhile, the annual inflation rate in March showed a decline to its lowest level in seven months. The annual rate dropped to nine per cent compared to 9.1 per cent in February. Moreover, March marks the third consecutive month for the annual gauge to go down.
A Capital Economics note pointed out that a breakdown of the annual inflation figures showed that the fall in inflation was mainly driven by the decline in food inflation by 12 per cent year on year. Food accounts for 40 per cent of the basket of commodities and services through which the inflation level is calculated.
"This may reflect the impact of earlier falls in global food prices," Capital Economics said. Some moves in recent months have reduced the impact of the devaluation, such as introducing subsidised commodities in state-owned supermarkets and distributing them using army trucks.
Most of the other major categories in the basket increased in price, a fact that Capital Economics described as an early sign that the devaluation of the pound, which fell by 12 per cent against the US dollar last month, is starting to add to price pressures.
Last month, Egypt's Central Bank devalued the pound, a move the government had been reluctant to carry out because of fears it would spark inflation. "Our sense is that annual inflation is likely to rise in the coming months. Indeed, on past form at least every 10 per cent drop in the pound (against the dollar) tends to add 1.5-2 per cent to inflation," said the Capital Economics note.
The Central Bank of Egypt (CBE) tried to slow the rising inflation when it hiked interest rates by 1.5 per cent last month, a move that is not expected to be repeated in the coming meeting of the CBE's monetary policy committee due to the decline in annual inflation rates.
© Al Ahram Weekly 2016
