Egypt’s inflation drop ‘shows spending levels still low’

Woman leaves a clothing shop showing items for sale in Cairo, Egypt. The country's inflation dropped sharply in December. (Reuters)
Updated 13 January 2018
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Egypt’s inflation drop ‘shows spending levels still low’

CAIRO: Egypt’s inflation dropped sharply in December, the latest apparent indication of economic improvement after the 2016 currency float hit Egyptians hard.
Economists say, however, it may just be showing that spending power has yet to recover.
Prices climbed to record highs and the Egyptian pound lost half its value after the central bank floated it in November 2016 in a bid to secure a $12 billion International Monetary Fund loan to boost economic growth after years of turmoil.
With the pound at about 17.7 to the US dollar from a pegged 8.8 before the float, Egyptians have had to amend their spending habits to deal with their incomes and savings being slashed in half.
Urban consumer inflation eased to 21.9 percent in December from 26 percent the previous month, its lowest reading since the flotation, official data showed earlier this week.
Core inflation, stripping out volatile items such as food, fell to 19.86 percent from 25.53 percent.
Since the float, Egyptian exports have found new markets, narrowing the country’s trade deficit, and foreign reserves and foreign direct investment have surged to record highs.
But economists say the inflation drop is the result of a strong base effect, and not necessarily a meaningful economic recovery.
“After November 2016, you were comparing to the high rates of the post-flotation period, but in December, you had a strong base effect,” said senior economist at Beltone Financial Alia Mamdouh.
Monthly headline inflation contracted for the first time in two years in December due to a decline in the prices of poultry, meat and some vegetables and beans, data showed.
“The reduction may signal that the spending level has not fully recovered, especially because seasonal demand usually drives rates up,” Mamdouh said.
“We had expected a monthly rate of 0.5-0.7, but instead everything was flat except for food prices, of which some went down.”
Food producers said they wished to raise prices to maintain profitability, but are unable to because the market cannot absorb any more price hikes.
“We would like to raise the prices but the market isn’t favorable to that right now,” said Hani Berzi, the chairman of Edita Food Industries, one of the country’s largest food producers.
Retailers have also had to reduce prices of some foods like poultry and meat to lure back shoppers driven away by hikes.
“People don’t buy anymore,” said Ismail Gamal, the owner of a poultry shop in Nasr City. “We’re afraid we’ll go out of business if we don’t reduce prices.”
Economists say purchasing power could take three to four years to recover from the shock of the flotation.
“Segments of society have shifted from meat to cheese as a source of protein, this is what inflation did to consumers,” said Noaman Khalid, CI Capital Asset Management economist.
He said a complete economic cycle that includes business recovery and increased wages is necessary before purchasing power returns to pre-float levels and a healthy inflation rate is seen.
Egypt’s central bank has raised key interest rates by 700 basis points since it floated the pound to battle soaring inflation. Economists expect it to start cutting the rates in their upcoming monetary policy meeting, set for Feb. 15.


Iraq’s southern oil exports hold near record in January

Updated 21 January 2019
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Iraq’s southern oil exports hold near record in January

  • Southern exports so far in 2019 close to 3.6 mbpd — tracker
  • OPEC-led oil supply cut deal started in January

LONDON: Oil exports from southern Iraq are holding close to a record high so far in 2019, according to shipping data and an industry source, which could raise questions over whether OPEC’s second-largest producer is following through on a deal to cut output.
Southern Iraqi exports in the first 21 days of January averaged close to 3.6 million barrels per day, according to tanker data on Refinitiv Eikon and separate tracking by an industry source. That’s close to December’s 3.63 million bpd — a monthly record.
The figures suggest there is little sign yet of lower supplies from Iraq, despite a deal by the Organization of the Petroleum Exporting Countries and allies to reduce output by 1.2 million bpd as of Jan. 1 to support the market.
“So far, no cuts,” the industry source said on Monday of Iraq’s export rate.
The south is the main outlet for Iraq’s crude. An Iraqi official, the director of Iraq’s Basra Oil Company, on Jan. 11 gave similar figures for January exports to those suggested by the tanker data and source.
Iraq, which has been expanding its oil export capacity, was reluctant to join a previous OPEC-led supply cut effort which began in 2017 and was at times OPEC’s least compliant member with the initiative.
To be sure, the OPEC-led deal applies to production, not exports. It is possible that Iraq could have cut production and maintained exports from crude held in storage, or reduced supply to domestic refineries.
Nonetheless, oil traders and analysts will be looking at exports to gauge whether the deal is lowering supply to the global market. So far, Iraq’s shipments abroad from the north haven’t declined significantly either.
Iraq’s northern exports appear to have held steady in January at about 400,000 bpd, according to tanker data compiled by Reuters and the industry source. That is still far below levels of more than 500,000 bpd in some months of 2017.
Baghdad says it will stick to the accord. Oil Minister Thamer Ghadhban said on Jan. 4 Iraq would keep production at the level of its OPEC target in the first half of 2019.
Under the deal, Iraq agreed to cut production by 141,000 bpd to 4.512 million bpd as of Jan. 1.