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Inflation eases in September but Egyptians’ purchasing power continues to fall

Egypt’s annual inflation rate has eased for the second consecutive month, reaching 32.9 percent in September, down from 33.2 percent in August, the Central Agency for Public Mobilization (CAPMAS) announced on Tuesday. September’s monthly inflation reached 1 percent, compared to 1.2 percent in August.

Urban annual inflation hit 31.6 percent in September, while in rural areas it has reached 34.4 percent.

“The ease in the inflation rate does not indicate a fall in prices. Prices are still increasing, just less rapidly this month compared to the previous month,” Heba al-Leithy, a professor of statistics at Cairo University and researcher at the Egyptian Center for Economic Studies, told Mada Masr. “The inflation rate remains at dangerous levels.”

“These rates indicate that people’s purchasing power and living standards continue to deplete,” she said.

The slowing inflation rate is a result of an ease in the steady increase of food prices, as well as clothes, transportation, restaurants and hotels, said London-based consultancy firm Capital Economics in an emailed overview of its research on Tuesday.

Food commodities continue to lead the price hikes in September, with a 42.2 percent annual inflation rate compared to 42.6 percent in August. The most significant price hikes in this category are related to coffee, tea, cocoa and dairy products.

“The extreme rise in food prices has resulted in a lower rate of food consumption by people and has also led to less healthy eating habits, which ultimately has significant negative implications on people’s health, particularly on children,” said Leithy.

“People with fixed incomes suffer the most from the current inflation rates,” the professor added. “If we define living standards as people’s ability to acquire necessary goods and services, or the goods and services that they judge to be necessary to them, then living standards are depleting for people with fixed incomes with the value of the rise in prices,” she added.

Annual inflation rates peaked in July at 34.2 percent, the highest since the implementation of economic measures with inflationary repercussions which were undertaken as part of an agreement with the International Monetary Fund for a US$12 billion loan which was finalized in November 2016.

Leithy explains that inflation rates accelerated in past months as prices were being compared to rates from before the implementation of the inflationary economic measures, during which time there were significant price fluctuations. She added that when current prices are compared with those from the past few months, after the inflationary measures, the increase will seem comparatively less drastic.

In its research overview, Capital Economics projected that inflation rates will continue to subside in the coming few months, but Leithy believes that the rates will remain in the double digits.

Egypt has been developing an economic program with expected inflationary repercussions since 2014 in preparation for the deal with the IMF. The $12 billion loan was to be disbursed over three years following the implementation of the program, which included the introduction of the Value Added Tax in September 2016.

The government increased fuel prices in June for the second time in a span of less than a year, upping prices by a range of 50 – 100 percent. Electricity prices also increased at an average of 40 percent in July, and the value added tax was hiked from 13 percent to 14 percent.

In an effort to curb inflation rates, the Central Bank of Egypt (CBE) raised interest rates by 700 basis points in November 2016, and increased the reserve requirement ratio from 10 percent to 14 percent last week. However, Capital Economics expects the CBE to begin cutting interest rates back by the end of the current calendar year.

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