Oil brings Egypt inflation to multi-year low

Inflation in Egypt fell to its lowest level since 2013 last month as the impact of higher fuel prices following the end of subsidies wore off.

Core consumer price inflation, which measures the cost of goods typically purchased by consumers, fell to an annual rate of 5.6 per cent last month, according to data from the Central Bank of Egypt. That is down from a peak of 8 per cent in May and heights of 12 per cent at the end of 2013. Urban consumer price inflation, which measures inflation in Cairo, fell to 7.9 per cent, down 5.2 percentage points from its May peak of 13.1 per cent.

The collapse in the oil price from nearly US$110 per barrel last year to $47 per barrel yesterday has reduced inflation for oil-importing countries such as Egypt. Global food price inflation is at a five-year low, according to the United Nations Food and Agriculture Organisation.

The Egyptian government cut fuel subsidies in July last year, with the resulting spike in prices showing up in inflation figures in every month between July last year and July this year. The 30 per cent cut in energy subsidies is estimated to have saved $7 billion in state spending.

“It’s a relatively positive thing for living standards because inflation has been quite high as a result of bottlenecks in Egyptian manufacturing and problems getting dollars to importing goods,” said Jason Tuvey, an emerging-markets economist at Capital Economics.

Lower inflation is likely to give the central bank the opportunity to cut interest rates, Mr Tuvey said. “Policymakers have previously hinted that they want inflation in single digits [before considering a rate rise],” Mr Tuvey said. “[They] feel that cutting rates will help to boost investment”. Egypt has been plagued with fiscal and current-account deficits for more than a decade.

Egypt’s current-account deficit hit $38.8bn in the 2014-15 fiscal year, which ended on June 30. Successive budget deficits have pushed the country’s debt-to-GDP ratio up to 93.8 per cent by the end of the same period – an increase of 20.1 percentage points since the 2011 revolution.

The cut to fuel subsidies was part of a raft of measures designed to address these twin deficits while improving the country’s poor business environment – Egypt is ranked 112th globally.

Measures included wooing foreign investors at the Sharm El Sheikh investment conference in March this year, the widening and deepening of the Suez Canaland amendments to a law governing foreign investment.

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