Egypt’s inflation spikes post November currency floatation, rate hike expected

By bne IntelliNews December 9, 2016

Egypt’s annual inflation rate spiked in November to hit its highest levels since July 2008, reflecting the effects of the general rise in price levels of goods since the Egyptian pound’s floatation and a hike in fuel prices.

Prices of goods leapt in November due to the massive devaluation of the Egyptian pound against major currencies following its floatation on November 3, raising prices of imported goods as well as internationally prices local commodities. 

The headline annual Consumer Price Index (CPI) touched 19.43% y/y in November, which was up from an already elevated 13.56% y/y rate in October, the central bank reported, citing CAPMAS. The annual inflation rate was mainly boosted by a 4.85% m/m jump in the monthly headline CPI in November compared to a relatively benign 1.70% m/m rise in October. 

Analysts see that the massive jump in the monthly inflation rate could push the central bank’s hand to raise key interest rates yet again at its next Monetary Policy Committee (MPC) meeting scheduled for December 29 after a 300bp hike on the day of the floatation. Capital Economics, an economic consultancy, forecasted in note to clients a 150bp rate hike at the upcoming MPC meeting.

Price pressures building up in the Egyptian economy in November directly hit basic consumer necessities. Prices of edible foods and drinks increased by 5.1% m/m, with the sub-index for food and beverages contributing 2.7bp to the overall rise in the monthly CPI. Prices of most food items posted significant m/m increases, including, meat and chicken (4.2%); grains and bread (6.7%); vegetables (3.3%); milks, cheese and eggs (6.6%); oils and fats (8.5%); sugar and confectionary (14.5%); coffee, tea and cacao (11.7%); mineral water, soft drinks and juices (9.3%).

With food accounting for over 30% of the average household budget, rising food prices hurt consumer purchasing power noticeably reducing standards of living.

Likewise, there was a visible m/m price rises in a wide range of non-essential goods, including, alcoholic beverages and tobacco (8%), clothing and footwear (11%), future and home appliances (7.9%), healthcare (5.5%).

In compliance with the International Monetary Fund’s demands for fiscal consolidation, the Egyptian government increased the administratively regulated prices of subsidized fuels in November as a result the transportation sub-index soared, increasing by 12.6% m/m and contributing 0.47bp to the overall rise in the monthly CPI. The cost of providing transportation services increased by 10.9% m/m and spending on private transport category, mostly gasoline for private cars, was up by 23.3% m/m.

The significant jolt in the annual inflation rate in November was also primarily caused by a 22.5% y/y jump in the food and beverages sub-index. Similarly, there were noticeable y/y price increases in a large number of annual sub-indexes, including: alcoholic beverages and tobacco (25.6%); clothing and footwear (20.3%); housing, water, electricity; gas and fuels (8.3%); furnishing, home appliances and their maintenance (24.2%); healthcare (26.2%); transportation (21.6%); culture and entertainment (17.3%); hotels and restaurants (24.4%).

Meanwhile, core monthly CPI computed by the central bank, which typically excludes from the headline CPI regulated items and the most volatile food items, namely fruits & vegetables, surged rising by 5.33% m/m in November compared to a relatively high 2.81% m/m in October, while the annual core inflation rate soared to 20.73% y/y in November compared to 15.72% y/y rise in October.

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