Egypt’s annual urban consumer price inflation fell sharply to 12.0 per cent in December from 15.7 per cent in November, the official statistics agency CAPMAS said on Thursday, amid mixed expectations among analysts.
Inflation had started to cool steadily in recent months after an increase in fuel, electricity and transportation prices earlier this year had sent the rate up to a high of 17.7 per cent in October on the back of increased food prices.
“What happened in October was surprising with the supply shock driving inflation up to 17.7 per cent. But what we’re seeing now is a return to normal conditions.
“That said, a 6.7 per cent drop month-on-month in the price of food and beverages is a lot,” said Allen Sandeep, head of research at Naeem Bokerage in Cairo.
The month-on-month decline was led chiefly by sharp drops in the prices of tomatoes and potatoes, which fell 37.4 per cent and 29.8 per cent, he added.
Others, however, did not expect a decline of this magnitude.
“This was an extremely surprising result. Food prices were mainly behind the October spike and cooling led to this decline, but it is a big drop,” said Alia Mamdouh, director of macro and strategy at Beltone Financial.
Egypt has implemented a series of tough austerity measures to help meet the terms of a $12 billion IMF loan programme it signed in late 2016.
The programme calls for tax increases and deep cuts to energy subsidies
The central bank kept its key interest rates on hold at its December meeting, saying that the current policy rates and inflation outlook were in line with “achieving targeted disinflation.”
“(The December headline inflation figure) bodes well with our view that the central bank could shift to monetary easing in 2019, particularly in the first half of the year,” said Hany Farahat, senior economist at Egyptian investment bank CI Capital.
Egypt’s central bank last moved its rates in March 2018, slashing the overnight deposit and lending rates by 100 basis points to 16.75 per cent and 17.75 per cent respectively.