Egypt’s annual urban consumer inflation rises to 14.4% in June

Prices soared in particular after the import-dependent country floated its currency, the pound, in November 2016, reaching a record high of 33 percent in July 2017. (Reuters)
Updated 11 July 2018

Egypt’s annual urban consumer inflation rises to 14.4% in June

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. 

Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019

Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”