Egypt Inflation March 2017

Egypt

Egypt: Inflationary pressures start to recede as inflation reaches three-decade high in March

April 11, 2017

In March, urban consumer prices rose 2.0% from the previous month. Although this still represents a noteworthy jump in prices, the fifth since the Central Bank abandoned the Egyptian pound’s peg to the U.S. dollar in early November, March’s reading was below the 2.6% increase observed in February and marked the lowest result in five months. This suggests that the aftershocks from the decision are starting to fade. In fact, core consumer prices—which exclude some of the hardest-hit commodities such as several food products and regulated utilities—dipped in March from the previous month, which is the first time that this has happened in nearly two years.

Urban inflation came in at 30.9% in March. The reading was only slightly above the 30.2% figure seen in February but still marked the highest inflation level since June 1986. Inflationary pressures receded in March as price rises slowed and a lower customs U.S. dollar to Egyptian pound rate stabilized the cost of imports.

Inflation has accelerated on the back of the flotation of the pound, the scrapping of several subsidies on regulated goods and the introduction of a new Value-added Tax. A weakened currency has eroded Egyptians’ purchasing power and has prompted prices of imported goods to spike, while the removal of subsidies has caused supply shortages and widespread discontent. On the flipside, tough economic reforms have restored investor confidence in Egypt, with U.S. dollars pouring steadily into the country and international reserves rising to a multi-year high.

Annual average inflation rose from 17.1% in January to 19.0% in February, reaching the highest figure in decades.

Although price pressures are likely to ease in upcoming months, a fresh wave of subsidy cuts—expected towards the end of the year—will ensure price adjustments continue. Inflation is thus expected to remain at double digits in both 2017 and 2018. FocusEconomics Consensus Forecast participants expect inflation to average 22.3% in calendar year 2017, which is up 2.1 percentage points from last month’s projection. For calendar year 2018, the panel sees average inflation of 13.9%.


Author:, Economist

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