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Egypt records 5% average headline urban inflation in 2020: CBE - Daily News Egypt

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Egypt records 5% average headline urban inflation in 2020: CBE

Real GDP growth records -1.7% in Q2 of 2020, before recovering to 0.7% during Q3 of 2020


The Central Bank of Egypt (CBE) has undertook several measures to counteract the economic impacts of the novel coronavirus (COVID-19) pandemic, which started to have an impact on Egypt by mid-March 2020.

In response to this health crisis and its impact both domestically and globally, the CBE measures were put in place to ease the monetary conditions and anchor inflation expectations.

These aimed to mitigate the economic and social impacts of the pandemic, while maintaining Egypt’s macroeconomic stability.

The measures included the CBE’s Monetary Policy Committee (MPC) acting pre-emptively by cutting basic interest rates by 300 basis points in an unscheduled meeting on 16 March 2020. The MPC’s decisions were designed to support economic activity and alleviate pressures in domestic financial markets.

Additional measures included the launch of several initiatives directed to the most affected sectors in the economy, especially tourism.

Moreover, with the continued containment of underlying inflation expectations, the MPC decided to cut interest rates by 50 basis points in each of its September and November 2020 meetings. The moves yielded cumulative cuts of 400 basis points during 2020.

Accordingly, average annual headline urban inflation recorded 5% during current year (CY) 2020, compared to 9.2% in 2019, marking the lowest rate recorded since 2005. This comes as annual headline urban inflation recorded an average of 5.2% during the fourth quarter (Q4) of 2020, which came against a target lower band of 6%, as was announced in December 2018.

The deviation from the target was a result of the impact of the COVID-19 pandemic and its effects on the economic activity, notwithstanding the resulting unprecedented level of uncertainty. It was also affected by the government measures to avoid any supply-chain induced shortages in the market.

At the onset of the pandemic’s outbreak in Egypt, annual headline urban inflation rate increased in April 2020. However, it mainly reflected a short-lived hoarding behaviour of food items in light of the containment measures, which coincided with the seasonal price increases of Ramadan.

Since then, underlying inflationary pressures have remained broadly muted as annual rates continued to be mainly affected by favourable and unfavourable base effects. Accordingly, the impact of the COVID-19 outbreak became deflationary with inflationary concerns not materialising. This was in contrast to the events witnessed at the beginning of the pandemic in Egypt and in some other countries.

It also reflected the slowdown of economic activity induced by the containment measures and the repercussions of the shock both domestically and globally. Accordingly, real GDP growth registered a preliminary figure of 3.6% in fiscal year (FY) 2019/20, compared to 5.6% in the previous FY.

This comes as it recorded -1.7% during Q2 of 2020, before recovering to 0.7% during Q3 of 2020. In addition, the unemployment rate increased to 9.6% during Q2 of 2020, before declining to 7.3% during Q3 of 2020.

This comes along a broadly stable exchange rate, low international oil prices, as well as the absence of negative supply shock mainly related to food items, except for November 2020, before its partial reversal in December 2020.

Historically, food inflation has been the main driver of headline inflation in Egypt. However, the subdued inflationary pressures were particularly evident in food inflation. While food and beverages (F&B) remains the largest component in the CPI basket, its weight declined from 39.9% to 32.7% with the release of the 10th CPI series starting from September 2019 data.

Accordingly, food inflation has been impacted by the release of the new series and its linking methodology to the ninth series. In addition, lower food inflation reflected the impact of structural factors to improve supply chains as well as measures to avoid any supply shortage.

It was also affected by containment measures which included a partial curfew and the closure of hotels and restaurants and its effect on domestic inventory levels. Although hotels and restaurants are no longer affected by government closures related to the pandemic, this sector has still not reached full capacity yet.

Furthermore, according to studies released by the Central Agency for Public Mobilization and Statistics (CAPMAS), households resorted mainly to consuming cheaper sources of food. They also lowered their weekly consumption of meat, poultry and fish in response to the impact of COVID-19 on lowering their incomes.

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https://dailyfeed.dailynewsegypt.com/2021/01/18/egypt-records-5-average-headline-urban-inflation-in-2020-cbe/
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