Egypt Inflation Eases as Central Bank Sees Rate Peaking

  • Central bank sees inflation easing significantly by end-2018
  • Decline shows subsidy cut impact not fully reflected in prices

Egypt’s inflation eased in August, signaling that the surge in prices after the government’s latest round of subsidy cuts may have peaked.

The annual rate for urban areas dropped to 31.9 percent in August from 33 percent in the previous month, according to data released by the official statistics agency on Sunday. Prices rose 1.1 percent on the month, compared with 3.2 percent in July, a month after fuel and utility prices were raised.

“This month’s figures suggest that businesses were not able to pass on the full extent of the increase in costs to consumers so as not to hurt demand for their products and services,” said Reham El Desoki, senior economist at investment bank Arqaam Capital. “Inflation should remain within the same range in the coming two months before falling to the mid-twenties range in November.”

Annual core inflation, which strips out volatile and regulated items, fell to 34.86 percent, according to the central bank. The monthly rate slumped to 0.32 percent versus 2.76 percent in July.

Consumer prices surged to the highest level in decades after policy makers abandoned most currency controls in November and began cutting subsidies, steps that helped secure a $12 billion International Monetary Fund loan. The measures have helped the central bank rebuild its foreign-currency reserves and encouraged investors to pour billions of dollars into Egyptian local-currency and dollar-denominated debt.

The central bank said last week it expects inflation to accelerate in the third quarter before easing gradually to its target of about 13 percent — plus or minus 3 percentage points — by the end of 2018.

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