According to data from the Central Bank of Egypt on Sunday, the core inflation rate in Egypt rose to 3.3% year-on-year in September from 0.8% in August.
The Central Agency for Public Mobilization and Statistics announced yesterday, Saturday, that consumer prices in cities rose to 3.7% on an annual basis in September from 3.4% in the previous month.
Thus, inflation is less than the central bank’s target range of 9%, plus or minus three percentage points.
Compared to the previous month, prices rose 0.3% in September compared to a 0.2% contraction in August.
The calculation of core inflation does not include prices for highly volatile commodities such as food.
Mona Badir, chief economist at Prime Investment Bank, attributed the rise in core inflation to “the unfavorable impact of the base year and the changes that occurred in the components of the food basket for the corresponding month.”
“Next month, the numbers will be greater due to the impact of the start of the school year, but I expect there will not be a big shock in the numbers,” she said.
Low inflation complicates a dilemma the central bank faces: should it keep interest rates high to sell treasury bills and protect the currency, or reduce them to stimulate growth in the economy affected by the coronavirus pandemic.
Under a one-year credit readiness agreement signed with the IMF in June worth $ 5.2 billion, Egypt is obligated to consult with a technical team if annual inflation falls below six percent by the end of September, and with the fund’s board of directors itself if it falls below four percent.
Some economists argue that if inflation remains low, the IMF may argue that the central bank’s monetary policy committee should consider cutting interest rates at its next meeting on November 12th.
The decline in inflation in Egypt is due to reasons including tightening control over money supply since a program with the IMF in 2016, a coordinated campaign to invest in agriculture, and weak consumer demand due to the Corona pandemic.
Inflation had climbed to a peak of 33% in July 2017 after Egypt implemented austerity measures with support from the IMF, including raising fuel prices, imposing value-added tax and other taxes on tobacco products, while reducing the currency’s value by half against the dollar.
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