Egypt’s inflation rate jumped to 13.8 percent in June, according to the country’s official statistics agency, as new subsidy cuts designed to reform the country’s economy were brought in last month.
While annual inflation has increased from the 11.4 percent recorded in May, it is still far lower than the 30-year high of more than 30 percent year-on-year reached in mid-2017, following a previous round of fuel and energy subsidy cuts.
Allen Sandeep, head of research at Naeem Brokerage, said that the June rate was higher than had been estimated.
“It is of course for the most part taking into account the fuel subsidy cut,” he told Reuters.
The head of research at Pharos Securities Brokerage, Radwa El-Swaify, said the impact of fuel price rises appeared faster than expected.
“We had expected the 3.5 percent MoM increase in CPI to hit the July numbers, rather than June, which means that the spike in cost had reflected on prices faster than estimated,” El-Swaify told Reuters.
“Consequently, we expect July monthly inflation to hit 2.5 percent to 3.5 percent, and annual inflation to score 14.5 percent to 15.0 percent, but level off gradually to 13 percent to 13.5 percent by December 2018.”
Last month, Egyptian authorities put in place another round of fuel-price increases as well as hiking the cost of piped drinking water and tickets on the Cairo metro.
Inflation for urban regions of Egypt reached 14.4 percent year-on-year, while in rural parts of the country the figure reached 13.1 percent.
Food and non-alcoholic drinks inflation also rose last month, hitting 10.1 percent in June from 8.6 percent in May.
Annual transport inflation leapt to 55.1 percent last month from 15.5 percent year-on-year in May.
The price hikes are part of a wider effort to fulfil the requirements laid out by the International Monetary Fund (IMF) in order for Egypt to secure a $12 billion loan it had agreed to in November 2016.
Jason Tuvey, senior emerging markets economist at Capital Economics, forecasted that inflation could rise a little more in July due to electricity price hikes that came into force at the start of the month.
“Even so, we doubt that higher inflation will prompt the Central Bank of Egypt (CBE) to raise interest rates at its meeting in mid-August,” he said in a research note.
Inflation will remain within the Central Bank’s target range, the note forecasted, adding that at the last meeting in May, Egypt’s policymakers said they had taken into consideration the forthcoming subsidy cuts when previous decisions to keep rates unchanged were made.
“The rise in inflation should be temporary and we expect it to fall back from August onwards, providing scope for the MPC to resume its easing cycle,” the note added.
At the end of June, the IMF completed its third review of Egypt’s economic reform program, allowing the country to draw down more funds under the $12 billion loan agreement.
The fund has backed Egypt’s efforts to reform the economy to-date, in a statement released on July 2.
“The authorities’ fiscal consolidation plan remains on track, and this year’s surplus target appears likely to be met,” said David Lipton, the IMF’s first deputy managing director and acting chair, in the statement.
“The ongoing energy subsidy reform is critical to support fiscal consolidation and encourage more efficient energy use, and next year’s budget continues to replace poorly targeted energy subsidies with programs that support poor households,” he added.