Egypt Urban Inflation Eases to 9 pct as Low Season

Egypt’s urban annual inflation eased to 9 per cent in March 2011, as increases in food and beverage prices slowed, the Central Agency for Statistics and Mobilisation (CAPMAS) said on Tuesday. The figure was slightly below the 9.2 per cent rate in the 12 months to February. The consumer price index increased by 1.2 per cent month-on-month, fulfilling the predictions of some analysts. "On a monthly basis, I am expecting some increases in food prices driven primarily by poultry and meat prices due to the [recent] foot-and-mouth disease," Mohamed Abu Basha, an economic analyst at Cairo-based investment bank EFG-Hermes told Ahram Online on Monday. Foodstuffs have the largest impact on the inflation rate, as they constitute 44 per cent of the total items included in Egypt's weighted basket of commodities. The overall deceleration in annual inflation, however, is mainly driven by base effects, according to Abu Basha.

The slight drop could also be seen as standard given the time of year. "March is usually a non-season so it's normal that inflation eases. It is not like the summer or the months of Ramadan [when consumption is typically higher]," Monette Douce, research manager at Prime Holdings, told Ahram Online. "But the monthly rise in prices of 1.2 per cent is not necessarily positive," she added. Douce explained that two forces are currently pushing against each other in determining Egypt's inflation.

Egypt's sluggish economic growth and high unemployment rates have weakened consumer demand, which should slow inflation. However, recent shortages in essential goods like diesel and butane are pushing prices back the other way. "We should not be fooled by the drop in inflation because it represents a drop in demand by the population," Doss said. Douce warned that any change in exchange rates could cause a hike in prices given Egypt's dependence on exports for much of its food supply and intermediate goods. "Until now the effects of exchange rate struggles have been contained, but they could quickly worsen if the flow of foreign currency and investment continues to be squeezed," she said.