Waning inflation rates don't reflect weak Egypt economy: Economist

Ahram Online, Monday 10 Dec 2012

Economist attributes Egypt's declining inflation rates - now at lowest since 2006 - to seasonal declines rather than waning domestic demand

(Photo: Reuters)

Egypt's annual inflation rate in November 2012 slipped to its lowest level since March 2006, a drop that is more attributed to seasonal declines in commodity prices, namely food and butane prices, rather than a slowdown in domestic demand, an economist told Ahram Online.

Annual inflation registered 4.1 per cent in November 2012, down from 7 per cent in October 2012.

"This inflation drop was not driven by any particular economic trends whether domestically or globally," Mohamed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes told Ahram Online.

Food prices, for one, grew by an annual 5.3 per cent in November 2012 over the same month in 2011. Such a growth rate is significantly lower than the 8.8 per cent by which food prices grew by in October 2012 and September 2012. Foodstuffs have the highest weight in the consumer price index used to calculate inflation.

"The fall in Inflation is attributed to seasonal and volatile fluctuations in the prices of certain goods in the local market," Abu Basha explained. "Namely, vegetables, butane and cigarettes,"

Butane gas cylinders, which are subsidised but are haphazardly priced according to market forces and black market dealings, saw their prices fall by 12 per cent in November 2012 to below October 2012 rates. Similarly, vegetable prices dropped by 11.8 per cent on a monthly basis.

Examining the annual price growth of these two items in October 2012 and November 2012 explains the overall drop in inflation in the latter. The price increases in October 2012 from October 2011 were much larger than increases in November 2012 from November 2011.

                                    Difference between Oct 2011/ Oct 2012           Difference between Nov 2011/ 2012            

Butane cylinders              156 per cent                                                                             38 per cent

Vegetables                        19   per cent                                                                              2   per cent

"The effect of the increase in cigarette prices in November 2011, which took its toll on inflation in the twelve months up to November 2012 faded away," Abu Basha said.

Month-on-month inflation dropped 1.5 per cent in November, with food prices falling by 2.7 per cent.

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