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Egypt inflation slows in July as fuel prices remain stable

Amal Mahmoud, Tuesday 11 Aug 2015
Petrol station
People jostle for a fuel dispenser nozzle as a worker fills the tank of a car at a petrol station in Cairo (Photo: Reuters)
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The annual headline inflation rate in Egypt currently stands at 8.38 percent, a reduction from June’s rate of 11.39 percent, according to a Monday statement from the central bank.

Meanwhile, the year’s fuel prices remain stable.

In July of last year, a cut in fuel subsidies raised commodity prices by up to 78 percent, sending inflation to its highest monthly increase in six years.

The government started slashing its energy subsidies in July 2014 as part of its fiscal reform programme, which aims to reduce Egypt's ballooning budget deficit.

"Inflation rates should be moderate in the coming months. That’s because starting in July 2015, annual change in prices will be measured against last year’s inflation figures, which account for fuel prices hikes that took place in July of 2014," said Hany Farahat, senior economist at CI Capital.

This favorable base effect will continue as long as the government does not implement another round of subsidy cuts, Farahat said.

"Energy prices are expected to remain low as oil prices continue to be restrained by global oversupply, which will also be augmented by return of Iran oil exports later this year," he added.

"Oil and food prices are expected to stay low this year globally, which should have a favorable effect on imported inflation," Farahat said.

The FAO Food Price Index, which measures the monthly change in international prices of food commodities, has reached its lowest monthly value in six years in July 2015, according to the FAO Website.

Egypt's central bank will have more room to cut its key interest rates in the coming monetary policy committee meetings, especially with limited upside pressures on inflation.

Delaying the imposition of the much-anticipated value-added tax will also increase the chances of a policy rate cut this year, said Farahat, adding that he believes the tax will be imposed in the second half of the current fiscal year as the government finalises work on its legal structure.

Egypt's state budget for the current fiscal year, assuming that the VAT is imposed this year, will garner around LE32 billion.
 

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