13 February 2017

Egypt's Finance Minister Says Inflation Yet to Reach Its Peak

Cairo — Egypt's finance minister Amr al-Garhy said inflation is expected to continue rising, reaching its peak sometime in the first quarter of the year, as a result of supply shocks following the pound flotation and the increase in fuel prices.

Egypt's official statistics agency said on Saturday that the annual urban consumer price inflation jumped to 28.1 per cent in Jan. from 23.3 per cent in December, its highest level since central bank records began in 2005.

In an interview with Bloomberg Television in Dubai on Sunday, Garhy said that policy makers expected prices to jump after Egypt abandoned its currency peg to the U.S. dollar on Nov. 3. The pound has roughly halved and urban consumer price inflation has doubled from 13.6 percent in October.

"We're still peaking when it comes to inflation, we expect this to happen January, maybe February or March, but after that we believe it will start subsiding because it's all resulting from supply shocks rather than demand-driven kind of inflation," Garhy told Bloomberg.

Egypt's central bank announced the flotation of the national currency and hiked interest rates by 300 basis points to help stabilise the newly floated currency as part of a broader economic reform programme. Reforms including subsidy cuts and tax increases aimed to reduce the budget deficit and public debt.

Successive reform measures that have mainly led to remarkable price hikes born by consumers enabled Egypt to secure a three-year $12 billion loan from the International Monetary Fund (IMF) in November. The first tranche of $2.75 billion was released at the time.

In its staff report released in January, the IMF said Egypt was on track to receive the second tranche of the loan.

Other measures including an end to energy subsidies, reforms to public enterprises and an overhaul of monetary policy are expected to be met by Egypt in the coming few years.


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