By: Raghda Helal
EFG Hermes recently stated in a memorandum that sudden decreases in inflation witnessed throughout Egypt, dropping from 8.3% in February to 7.6% in March, should be considered an exception. The group described the decrease as unsustainable.
This decrease came despite expectations throughout the market that inflation was set to rise to 9%, in addition to predictions made by Bloomberg News that it would reach 8.8%.
This decrease in inflation could partially be attributed to increases in the cost of food products at smaller rates than those predicted, with prices increasing only 1.4% during March, compared to the 3.2% predicted by EFG Hermes.
Inflation that was not related to the price of food also remained stable according to EFG officials, despite expectations that such numbers were set to increase 1.1%.
A report released by EFG Hermes stated that drops in inflation could partially be attributed to the sharp increase in the price of basic goods over the last two months, a fact which had caused Egypt’s market to bottom out. The report did state that inflation could be expected to increase once again over the next few months, especially considering recent decreases in the value of the Egyptian pound.
The report further stated that decreases seen throughout March were not sustainable, and that such rates could be expected to increase once again until the end of 2013.
Overall increase in inflationary pressure could also be attributed to the weakening of the value of the Egyptian pound, which lost 8% of its value within the country’s “parallel”, or black, market since mid-March.
Protracted fuel shortages have also contributed to the rise of inflation, in addition to increased austerity measures taken by Egypt’s government.
At the beginning of April for example, Egypt’s government pledged to raise the price of subsidised Liquid Petroleum Gas (LPG) Cylinders, as a means of closing the country’s budget gap.
The report predicted that yearly inflation rates could be expected to increase, with food prices increasing monthly, as has been the case over the last three months. This has led to cumulative increases in food prices by 6.9%, a fact which reflects the increasing pressure on Egypt’s citizens.
The report further stated that it predicted Egypt’s inflation rates for 2013 would remain on average at 12.1%, with Central Bank interest rates expected to increase 150 points throughout 2013. Although decreases in inflation rates throughout March may allow for the Central Bank to refrain from increasing interest rates during its next meeting, Hermes predicted that it would still be forced to do so during later meetings held throughout the year.