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UPDATE: Egypt’s urban inflation falls to 5.4% in December 2020 - Daily News Egypt

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UPDATE: Egypt’s urban inflation falls to 5.4% in December 2020

Headline inflation records 5.1% in 2020, down from 8.5% in 2019


Egypt’s consumer price index for urban consumers (CPI-U) fell to 5.4% on an annual basis in December 2020, compared to 5.7% in November 2020, the Central Agency for Public Mobilization and Statistics (CAPMAS) has revealed.

In a statement on Sunday, the agency stated that the headline inflation for the whole country recorded 5.1% in 2020, down from 8.5% in 2019.

It pointed out that the consumer price index (CPI) in Egypt decreased to 110.60 points in December from 111.10 points in November of 2020, registering a 0.5% decline.

CAPMAS attributed this decrease to a fall of: 10.1% in vegetable prices; 0.6% in fish and seafood prices; 0.2% in meat and poultry prices; 0.1% in dairy, cheese and eggs prices; and 0.6% in garment prices.

This comes despite the increase in the prices of: fruits by 3.8%; oils and fats by 0.5%; cereals and bread by 0.2%; transportation services by 0.7%; and rents by 0.1%.

According to the agency, the annual inflation rate recorded 6.0% for December 2020, compared to 6.3% in November 2020, and 6.8% in December 2019.

Moreover, the monthly core inflation, computed by the Central Bank of Egypt (CBE), recorded 0% in December 2020, compared to 0.2% in the same month of the previous year and 0% in November 2020.

Accordingly, the annual core inflation rate recorded 3.8% in December 2020, compared to 4% in November 2020.

The Central Bank of Egypt (CBE) was targeting an inflation rate at 9% (±3%) on average during the fourth quarter (Q4) of 2020, but the target was revised to 7% (±2%) on average during Q4 of 2022.

The CBE’s Monetary Policy Committee (MPC) projected that the average headline inflation rate would record single rates below the level of 6% during Q4 of 2020. It also noted that the degree of potential deviation from the target rates depends mainly on the degree of lower tomato prices.

The committee decided, in its meeting on 24 December 2020, to keep the basic interest rates at 8.25% for deposits, 9.25% for lending, and 8.75% for the credit and discount rate and main operation rate.

The CBE said that monetary policy tools will continue to be used to control inflation expectations, and contain inflationary pressures from the demand side and the secondary effects of supply shocks. This may lead to the deviation of inflation from the target rates, with the CBE adding that inflation may deviate from the target rates due to factors outside the scope of monetary policy.

Banking expert Mohamed Abdel-Aal said that the CBE aims to maintain a single-figure inflation rate with a downward curve for two years.

He pointed out that the first target for inflation came on the back of Egypt’s economic reform programme, as the CBE at the time was targeting inflation at 13% (±3%). The following target was 9% (±3%) in Q4 of 2020.

He noted that the new inflation target of 7% (±2%) until the end of 2022 is less than its predecessor, and would keep inflation rates in single digits.

According to Abdel Aal, the MPC continues to target inflation, while stimulating growth and employment, and continuing to follow all its tools to achieve that goal.

He pointed out that high inflation may be possible if all other policies do not combine with the monetary policy. The big challenge during the next stage is to increase domestic production whilst reducing the cost of producing goods, by reducing the cost of financing. This will ensure that there is suitable production supply that corresponds to a real demand as a result of increasing people’s real incomes.

Moreover, the Research Department at Beltone Financial said the annual inflation reflects the 0.4% decline in its monthly rate during December, compared to an increase of 0.8% in November and expectations of 0.1% increase.

Beltone indicated that the decline in the monthly rate of inflation was supported by a 1.2% fall in food commodity prices, despite the expected seasonal spending during the winter holidays.

It expected inflation to remain affected by temporary supply shocks on some food commodities, which lead to fluctuations in the monthly performance of inflation. At the same time, inflation rates would remain within the new CBE’s target range of 7% (±2%) on average until the fourth quarter (Q4) of 2022.

Beltone also expects that developments related to inflation will continue to create the conditions for the CBE to keep interest rates unchanged during the next MPC meeting on 4 February 2021.

“However, we expect that the CBE will cut interest rates by about 50 basis points in Q1 of 2021 based on inflation readings during January,” it said, “We confirm our view that the decision to cut interest rates by about 400 basis points, which was taken by the CBE to support local economic activity, still affects the economy.”

Beltone indicated that annual inflation slowed slightly to 5.4% in December, from 5.7% in November, down from its 6% forecast.

 

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