Egypt revises July inflation rate up to reflect impact of government price hikes

Deya Abaza, Monday 1 Sep 2014

Monthly headline CPI up 3.6% instead of 3.1%, while annual figure reaches 11.1% instead of previously announced 10.6%

Motorists queue in-front of gas stations on hope of leaving with a full tank (Photo: Mai Shaheen)

Egypt has revised its July headline Consumer Price Inflation (CPI) to register a monthly increase of 3.6 percent, instead of the previously announced figure of 3.1 percent, the Central Bank of state-run statistics body CAPMAS said on Sunday.

The revision brings the annual rate up to 11.1 percent rather than the 10.6 percent reported earlier this month.

"The revision reflects the transparency of the agency in light of the spate of reforms implemented at the time and their effect," a CAPMAS spokesperson told Ahram Online on Monday to explain the exceptional revision. 

The previous figure of 3.1 percent had represented the highest monthly inflation increase since May 2008, coming after the government introduced a series of price hikes on state-subsidised fuels and electricity, as well as tax hikes designed to trim the budget deficit.

According to the Central Bank of Egypt, a 63 percent hike in the price of diesel, 52.8 percent increase in the price of benzene and 28 percent rise in the price of electricity, as well as price hikes on tobacco and fuel oil, directly added 1.52 percentage points to monthly headline inflation once they implemented in early July.

In attempt to cut spending and limit the deficit to 10 percent of GDP in 2015, the government raised the price of state-subsidised motor-fuels and electricity, in addition to raising taxes on tobacco and alcohol products.

The revised figures justify the CBE's decision to raise interest rates in July after the price hikes, which was in line with its expectations of spiking inflation, Hani Genena, chief economist at Pharos Holdings told Ahram Online.

At the time, the CBE had justified the interest rate hike as a "pre-emptive rate hike" to "anchor inflation expectations." 

The accelerating inflation rate is expected to continue into next year, says Genena, barring additional fuel price hikes, due to a combination of factors.

"Most companies we cover already raised the prices of their products by 8 to 10 percent to offset the effect of the fuel price hikes, and are planning further price increases," said Genena.

The cement and petrochemicals industries have been particularly hard-hit added Genena, by cuts in the supply of mazot and natural gas, as the government struggles to meet a rise in household electricity consumption across the nation which has caused daily blackouts. 

"In turn, prices in these sectors have risen by between 660 and 700 percent in the last month," he says.

Core inflation however increased by 1.79 percent in July, compared to 0.68 percent in June, "well above the monthly pace of 0.59 percent" recorded in the first half of the year, while the annual rate, which was "partially limited by a favorable base effect from the previous year," increased to 9.57 percent, up from 8.76 percent in June.

Rising costs of "other services," including the prices of inland transportation, was the largest factor in rising monthly core inflation, a measure which excludes certain items subject to temporary price shocks, such as subsidised goods and fruits and vegetables.

Transportation costs rose by a whopping 20.2 percent in from June to July, prices of tobacco and related products soared by 14 percent.  

Higher food prices had the second largest impact on core inflation from June to July, as food prices rose 2.8 percent. 

Headline CPI had declined in May, before picking up slightly in June to registered 0.84 percent, on the back of accelerating prices of fruit and vegetables and other food items with the approach of the holy month of Ramadan when food consumption increases. 

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