Egypt inflation eases for first time since currency float

cairo — Egypt’s annual urban consumer price inflation, the most widely watched measure, eased in May for the first time since the country floated its currency in November, after reaching its highest point in more than three decades. President Abdel Fattah Al Sisi is under increasing pressure to revive the economy, keep prices under control and create jobs. Annual urban inflation fell slightly to 29.7 per cent in May from 31.5 per cent in April, the official CAPMAS statistics agency said on Thursday.

In November, Egypt abandoned its currency peg of 8.8 pounds per dollar and floated the currency, which then halved in value. It also raised its key interest rates by 300 basis points, helping it to clinch a $12 billion International Monetary Fund programme.

Last month, the central bank raised its key interest rates by another 200 basis points, a decision aimed at dealing with inflation as well as demand-side pressures, after the IMF said action on those two factors was vital to keeping Egypt’s economic reform programme on track. But economists, businessmen and bankers say that inflation in Egypt, where only 10 per cent of the population have bank accounts, is due to rising raw materials costs and a hike in rates will not produce the desired effect.

“This slight dip does not mean Egypt has passed the inflationary pressure caused by November’s currency float. The Egyptian pound would have to strengthen and production would need to increase for inflation to see a real decline,” said Ehab Al Dessouki, a Cairobased economist.

“The slight dip also shows that last month’s rise in interest rates wasn’t as effective as anticipated.”

“I think we have passed the inflationary pressures driven by the float, but there are new reforms coming up that may take inflation higher,” said Hany Farahat of CI Capital. —