Why has the annual inflation rate decreased despite the recent price hike?

04:52 PM

Wednesday 10 November 2021

Books – Mustafa Eid:

3 analysts attributed the decline in the annual inflation rate in Egypt during the month of October compared to what it was in September to the favorable base period, which refers to the same period last year with which the inflation figures are compared.

The Central Agency for Public Mobilization and Statistics announced, in a statement today, Wednesday, that the annual inflation rate decreased for the first time in 6 months for the total of the Republic in October to 7.3%, compared to 8% last September.

The annual general inflation rate in cities decreased to 6.3% in October, compared to 6.6% in September.

The monthly general inflation rate during October recorded 1.7 percent for the whole of the republic, compared to an average of 1.6 percent in September, according to statistics, and the rate in cities was 1.5 percent, compared to 1.1 percent in September.

The central bank targets an average annual inflation rate of 7% (+ or minus 2%) on average during the fourth quarter of 2022.

However, analysts pointed out that the decline in the annual inflation rate does not mean that the rise in the prices of many commodities witnessed in the past period did not affect inflation, as the effects of this rise are clearly reflected on the monthly inflation rate.

Noman Khaled, an analyst and assistant manager at Investment Bank Arqaam Capital, told Masrawy that the decline in the annual inflation rate during the month of October compared to what it was in September dates back to the base period, which is the period to which inflation is compared.

Radwa Al-Swaify, head of the research department at Pharos Investment Bank, and Mona Badir, chief economist at Al-Ahly Pharos Securities Brokerage Company, agreed with Noman Khaled that the base period is the main reason behind the low inflation rate.

The prices of many commodities have increased during the last period, including building materials, clothing, some electrical appliances, furniture, and some food commodities such as meat, poultry and others, in addition to some education-related goods and services.

According to the statistics statement today, the prices of the meat and poultry group increased by 6.6% during the month of October, the dairy, cheese and eggs group increased by 3.3%, the fish and seafood group increased by 1.9%, and the cereals and bread group increased by 1.4%.

The prices of the calculated rent group for housing also increased by 0.4%, the group spent on private transportation by 1.8%, and the group of newspapers, books and stationery by 13.1%.

The beginning of the school year last month contributed to an increase in the prices of the pre-primary and basic education group by 19.5%, the higher education group by 16.7%, the general and technical secondary education group by 5.3%, and the ready-made meal group by 0.6%.

Noaman Khaled said that the decrease in the monthly inflation rate during October does not mean that the rise in the prices of some commodities during the past month was not reflected in inflation, but this was clearly evident in the monthly inflation rate, which rose to 1.5 percent in cities compared to 1.1 percent in September.

Khaled stated that the average monthly inflation rate in Egypt during normal conditions revolves around 0.5%, and therefore, during the month of October, the effects of the rise in many commodity prices during the past month appear.

Noaman Khaled believes that the month of October was among the months that witnessed the most inflationary pressures and strong rises in the prices of some commodities, including gasoline prices, and that the cost of production in the private sector began to be affected by the supply chain crisis that occurred globally and the reflection of the high prices globally such as gas and some other raw materials during the months of August September and October globally.

He believes that the monthly inflation rate in Egypt is still vulnerable during the month of November to complete the absorption of price shocks caused by the global price crisis, including the rise in supply oil prices, and the impact of raising gas prices for factories on product prices, and is expected to record between 1 and 1.5%.

He explained that the government in Egypt resorts to a policy of partially passing the rise in international prices and does not fully bear the cost to the citizen, as happens in some countries, which also contributes to controlling inflation rates.

Noaman Khaled also expected that the annual inflation rate in cities during the coming period will revolve around the level of 7%, and that at the worst case, in the event of a significant impact on the global price crisis, the annual inflation rate will not exceed the level of 9%, which is the maximum target for the Central Bank of inflation.

Mona Badir agreed with Nouman Khaled that the favorable base period will keep the annual inflation rates in November and December within the Central Bank’s targets.

Noaman Khaled expected a breakthrough in the coming period, which may indicate the stability of some commodity prices globally since the end of October after their rise, which means that they reached their peak, in addition to the decline in the prices of some other commodities, in addition to the presence of global movements in order to confront the energy crisis. Especially gas.

Noaman Khaled pointed out that what is currently happening on the ground suggests that the global inflation crisis is temporary and may take a period of 3 to 6 months to resolve.

It is also likely what is happening that expectations will decline towards the Central Bank to raise interest rates in the coming period, especially since it is likely that the Central Bank will be aware of the decisions to raise the prices of supply oil and factory gas before taking them. Naaman Khaled.


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