CAIRO: Egypt’s central bank launched Sunday a core inflation index, which excludes prices of some commodities and aims to improve inflation forecasts.
“The core inflation index will take effect starting January, Hisham Ramez, Central Bank of Egypt’s deputy governor, said in a press conference.
The new index is “a variant of the headline Consume Price Index (CPI) that excludes the impact of temporary price shocks on inflation, which could result for various reasons, including weather conditions, supply disruptions or infrequent resetting of prices by the government, a CBE statement read.
The prices of fruits and vegetables, which are affected by sudden supply shocks and account for 8.8 percent of the Consumer Price Index, will be excluded, according to a CBE statement.
Regulated prices, which constitute 19.4 percent of the CPI basket, will also be excluded.
“Excluding one-off price changes provides a better picture of existing underlying inflation pressures, the bank said.
The core inflation index will be complementary to the CPI issued by the Central Agency for Public Mobilization and Statistics (CAPMAS), the statement read, and not a substitute.
“Targeting price stability does not mean that we will overlook growth, we are seeking economic growth as well as lowering inflation rates to the bank’s comfort zone, Reuters quoted Rania Al-Mashat, head of monetary policy division at the central bank as saying.
“The core inflation index is a very important tool that sheds lights on reasons inflation rates went up, Mashat added.
CBE is employing the exclusion method, similar to central banks around the world, because it is easier to understand.
Launching the core inflation index is meant to enhance the public’s understanding of the inflation, ease temporary prices shocks and help forecasts, the bank said.
Ramez told Al-Ahram that CBE will be one of 25 countries publishing quarterly inflation reports.
Rising food prices brought inflation to 10.8 percent in September after 10 months of decline.
Reuters reported that “he main contributor to the month-on-month increase in the headline inflation was prices of fresh vegetables, the central bank said in a statement, adding that core inflation was 6.3 percent in September compared to 5.8 percent in August.
“This is a positive development which improves the CBE’s communication with analysts and investors, and the wider marketplace and media, Beltone Financial said in a research note.
“The core inflation index should provide better visibility regarding interest rate decisions by the CBE and their underlying rationale, Beltone added.
The investment firm expected the central bank to keep interest rates at their current levels, “despite the anticipated changes in annual headline inflation, which we expect could rise to as high as 15 percent by the end of 2009/early 2010.