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Egypt's annual inflation hits slowest rate in 2½ years in August

Inflation is down in August, running at 7.9 percent

Ahram Online , Thursday 10 Sep 2015
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Egyptian women shop at a vegetable market in Cairo (Photo: Reuters)
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Egypt's annual inflation hit its slowest rate since March 2013, at 7.9 percent in August compared to 8.38 percent in July, the state-owned statistics agency CAPMAS announced Thursday.

General prices soared in Egypt after the government raised fuel prices in July 2014 as part of its fiscal reform programme aimed at reducing the ballooning budget deficit.

The fall in restaurants and hotels knocked off 0.4 percent from inflation and the fall in recreation goods and services knocked off a further 0.2 percent, estimated London-based Capital Economics in a research note.

Annual core inflation also eased to 5.6 percent in August compared to 6.5 percent in July.

"Producers are unable to raise prices due to the decline in global commodity prices," Hany Genena, Economist at Cairo-based Pharos Holding told Ahram Online.

Genena also believes that the fall in global prices and the slowing of the inflation rate domestically give Egypt a chance to depreciate the currency which is seen as overvalued when compared to its global export competitors.

Emerging markets depreciated their currencies following a move by China to depreciate its Yuan.

"The inflationary percussions of the pound depreciation would be minimal if it loses 3 to 4 percent of its value but a needed 10 or more percent devaluation would see the inflation rate pick up," Genena said.

Capital Economics expects that the fall in inflation would prompt the central bank to cut interest rates by 50 basis points to 8.25 percent.

Following a surprise interest rate cut of 50 basis points in January, the central bank kept them unchanged at 8.75 percent for the deposit rate and 9.75 for the overnight lending rate.

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