The Central Agency for Public Mobilization and Statistics (CAPMAS) said the annual urban headline inflation recorded a slight increase in January to 7.2%, compared to 7.1% in December 2019.
CAPMAS said on Monday that the consumer price index reached 105.2 points in January, an increase of 0.8% over December.
This increase was due to the rise in the prices of meat and poultry by 5.3%, vegetables by 5%, mineral and carbonated water and juices by 0.6%, healthcare by 0.5%, restaurants and hotels by 0.3%, and miscellaneous goods and services by 0.3%.
Meanwhile, other goods saw decrease in prices such as fruits by 1.8% and other food products by 0.2%.
According to CAPMAS, the annual headline inflation for the country recorded 6.8% in January 2020, compared to 12.2% in January 2019.
Also on Monday, the Central Bank of Egypt (CBE) said the monthly core CPI inflation, excluding the price of volatile items such as food and energy, recorded 0.7% in January 2020, compared to 0.2% in December 2019. Accordingly, the annual core inflation rate recorded 2.7% in January 2020, compared to 2.4% in December 2019.
On 20 February, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold its second regular meeting this year to discuss the fate of the basic interest rates.
The headline inflation is the most prominent indicator on which the MPC relies to make any decision.
The MPC decided in its last meeting on 16 January to keep the overnight interest on deposit, lending, and the main operation unchanged at 12.25%, 13.25%, and 12.75%, respectively.
The committee said in its statement accompanying this decision that the annual urban inflation recorded 7.1% in December 2019, which was consistent with the CBE target.
The MPC emphasised that after reducing the basic interest rates of the CBE by a cumulative 350 basis points during the previous three meetings considered the current rates of return are appropriate at the present time and are consistent with achieving the target inflation rate of 9% (±3%) in the fourth quarter of 2020 and price stability in the medium term.
The committee indicated that it would continue to follow all economic developments and would not hesitate to resume the monetary easing policy, provided it continues to contain inflationary pressures.
According to Mohamed Abdel Aal, a banking expert and board member of the Suez Canal Bank, it was expected that inflation will range within CBE’s target.
He pointed out that some estimates expected it to rise, but that was unlikely to happen because the CBE will be keen to curb it below the target.
Moreover, Beltone Financial said that the strength of the Egyptian pound is expected to continue to support good inflation readings until the end of the year, which will maintain inflation rates in the CBE’s target range of 9% (±3%) until the end of 2020.
Additionally, Naeem Research said the reported inflation figures, both month-over-month (MoM) and year-over-year (YoY) in January 2020, were higher than its estimates of 6.7% YoY and 0.3% MoM.
The MoM surge in inflation, as per the company analysis, reflected
annual price revisions undertaken by traders and wholesalers that are usually timed at the beginning of the year.
Slight adjustment in household consumption patterns which seemed to mirror higher demand-pull inflation that was also accompanied by seasonality factors (impacting prices of some products such as meat and vegetables), it added.
The uptick in monthly inflation in January, however, comes post two consecutive months of price decline overall, and, four months of deflation in the food and non-alcoholic beverages index (resulting from lower cost of inventory and increased supplies).
Taking into account the latest data on inflation, Egypt’s real interest rate still stands high at around 5.5%.
“While we maintain our view that the CBE has sufficient room to cut interest rates by a cumulative 1.5%, taking into account the rise in demand-pull inflation (reflected in the MoM increase in prices during January), the CBE could continue the pause on monetary easing for the time being,” Naeem Research concluded.