August 8, 2019 / 7:13 AM / 2 months ago

UPDATE 3-Egypt's headline inflation slows to four-year low of 8.7% in July

(Adds core inflation, details and analyst comment)

By Nadine Awadalla

CAIRO, Aug 8 (Reuters) - Egypt’s headline inflation rate fell to its lowest in nearly four years, dropping to 8.7% in July from 9.4% in June, official figures from the CAPMAS statistics agency showed on Thursday.

Egypt is nearing the end of a three-year International Monetary Fund economic reform programme that saw inflation rise to a high of 33% in 2017.

July’s rate defied analysts’ expectations. It followed a fresh round of fuel subsidy cuts that pushed domestic fuel prices up by 16% to 30%.

“It seems that the energy price hikes may have had a smaller effect than many anticipated. But inflation in most other price categories eased too, suggesting that underlying price pressures are weakening,” said William Jackson, chief emerging markets economist at Capital Economics.

Scaling back fuel subsidies that strained Egyptian budgets for decades was a key plank of the $12 billion IMF reform package signed in 2016, when Egypt’s economy was struggling to recover from the turmoil that followed its 2011 uprising.

The changes were expected to push up prices for transport, food products and other goods.

“Inflation increased on a month-on-month basis, which reflects the rise in fuel prices, while the year-on-year figure eased, reflecting the favourable base effects,” said Nadene Johnson, an economist at NKC African Economics.

In July 2018, Egypt’s headline inflation rate was 13.5%.

“It’s great news for the markets because it reinforces hopes of interest rate cuts in August. I think the central bank now has enough room to restart its monetary easing policy going forward,” said Allen Sandeep, head of research at Naeem Brokerage.

At its last meeting on July 11, the bank’s Monetary Policy Committee left key interest rates unchanged at 15.75% and 16.75% for overnight deposit and lending respectively. It last cut its rates in February.

Core inflation, which strips out volatile items such as food, fell to 5.9% in July from 6.4% in June.

Rising prices for vegetables and fruit had been the main driver behind rising inflation over the years, which has prompted the interior ministry and the Egyptian army to offer some food staples at below market prices.

“It seems government efforts to help the internal market limit food-price increases have been working. It is good news and, I hope, will increase the chances of the MPC at the Central Bank of Egypt to propose cutting rates,” said Angus Blair, chairman of business and economic forecasting think-tank Signet.

Recent CAPMAS data showed that the number of Egyptians living below the poverty line rose to 32.5% in the 2017-2018 financial year from 27.8% in 2015-2016. The statistics agency set the poverty line at an annual income of 8,827 Egyptian pounds ($535) per person.

$1 = 16.5100 Egyptian pounds Reporting by Nadine Awadalla and Ehab Farouk; writing by Nadine Awadalla and Eman Kharoshah; editing by Raissa Kasolowsky, Mark Heinrich, Larry King

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