Egypt's annual urban inflation fell to a six-year low in July but it could be the calm before the storm as the country awaits the effect of future hikes in global food prices.
The country's annual inflation fell to 6.4 per cent in July, according to figures announced Thursday. It is the lowest level for the indicator since a popular uprising unseated president Hosni Mubarak in February 2011.
Hany Genena, head of research at Pharaos Securities Brokerage, told Ahram Online that the recent drop was caused by the unusually high food prices Egypt saw in 2011.
"We have to look for the 'base effect' to understand the inflation dip," he said.
Food prices surged in 2011 following unfavourable weather conditions, leading to major turbulences in food supply.
The international food price index, prepared by the Food and Agriculture Organisation of the UN (FAO), rocketed to 231 points in July 2011, compared to just 213 in July 2012.
The recent sluggish growth in food prices in turn caused July's dwindling rate of inflation. Food items are the heaviest weighted in the inflation index.
Food inflation fell from 8.1 per cent in the twelve months to July 2012, down from 9.2 per cent in June and 10.8 per cent in May.
Genena, however, warns that further turbulence is expected, caused by a rebound in global food prices due to another bout of problematic weather and supply difficulties.
"There is a severe drought in the US, which will cause corn prices to grow -- the rest will follow," he said, suggesting the shortage of inventories will inevitably lead to price hikes felt across the worldwide.
U.S. corn, soybeans and wheat prices saw another rise on Thursday as the market readied for a crop forecast on Friday from the U.S. Department of Agriculture (USDA), with expectations harvest estimates will be cut after the country's worst heat wave and drought since the 1930s.
The FAO food price index has already begun to edge up, from 207 in May to 213 in July.
Egyptian consumers, however, might not see the impact for a few months to come.
"The levels of inventory companies have, the individual strategy of each company, as well as specific market factors, could delay the pass on of the price increase to [Egyptian] consumers," Genena said.
But when they finally hit, he warned, inflation could climb as high as 14 per cent.
After seeing inflation rise to levels above 12 per cent in the second half of 2011, the Consumer Price Index started a steady drop. Inflation reached 7.3 per cent in the year to June, and 8.3 per cent to May.
Tobacco and alcoholic beverages saw a significant drop in growth, from an annual 19 per cent in June 2012 to just 8.8 per cent in July.
On a monthly basis, July prices were up an average of 0.4 per cent on June. Food prices increased by 0.7 per cent while rent, water and electricity dropped 0.4 per cent.