|10 September, 2019

Egypt's August inflation rate falls to 7.5%, lowest in years

Egypt is approaching the end of an IMF-backed economic reform programme that during 2017 saw the annual inflation rate rise to 33%

Image used for illustrative purpose. The 15th May Bridge, which spans the River Nile, and the surrounding buildings are seen in Cairo, Egypt, April 29, 2018.

Image used for illustrative purpose. The 15th May Bridge, which spans the River Nile, and the surrounding buildings are seen in Cairo, Egypt, April 29, 2018.

REUTERS/Mohamed Abd El Ghany

CAIRO - Egypt's annual urban consumer price inflation rate decreased to 7.5% in August, the lowest rate in years and seen by analysts as opening the way for further rate cuts by the central bank.

The inflation number reported by the official statistics agency CAMPAS on Tuesday, was lower than some analysts expected. The July pace was 8.7%.

Egypt is approaching the end of an IMF-backed economic reform programme that during 2017 saw inflation rise to a high of 33%.

According to Refinitiv data, August's rate was the lowest in more than six years.

"[August's rate] falls well below the 9% target the Egyptian Central Bank had set itself for the end of 2020. This paves the way for another large rate cut on Sept. 26," said Jaap Meijer, head of equity research at Arqaam Capital.

The central bank cut rates by 150 basis points at its last monetary policy committee meeting on Aug. 22, encouraged by the declining inflation rate.

Radwa El-Swaify, head of research at Pharos Securities Brokerage, said the August number is "positive and gives positive signs for interest rates in the next meeting. We expect a cut of 1%-1.5%."

Egypt hiked domestic fuel prices in July 2019 as part of the terms of the IMF agreement, and the increase had been expected to push up prices for transport, food products and other goods.

Nadene Johnson, an economist at NKC African Economics, said the August inflation number resulted partly from a favourable base effect from a year earlier. In August 2018, Egypt's headline inflation rate was 14.2%, following subsidy cuts.

She also said a strengthening currency as well as low global oil prices "would support further easing of price pressures"

"Nonetheless, with energy reforms complete, and with global oil prices on the bearish side, we expect inflation to ease gradually in the coming year, albeit slightly higher towards the end of this year," Johnson said.

(Reporting by Nadine Awadalla and Ehab Farouk; Editing by Richard Borsuk) ((Nadine.Awadalla@thomsonreuters.com;))

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