August 12th, 2018

– HC Expects Local Drivers of Price Inflation Will Stabilize in 4Q18 & MPC to Keep Interest Rates Unchanged


HC Securities & Investment assured that July’s headline inflation figure came in higher than our expectation of 1.5% on high monthly food and beverage inflation of 2.1% (compared with 1.7% in June), contributing to 1.15% of the total monthly inflation figure (compared with 0.94% in June).


Chief Economist at HC, Sara Saada said, “We believe the MPC will likely keep interest rates unchanged at its upcoming meeting. Expecting that monthly inflation to start normalizing in August to c1% on the phasing out of first and second round effects of fuel, electricity, and tax reforms, resulting in nearly stable yearly inflation in August. “


“We believe the local drivers of price inflation will stabilize in 4Q18, after which we may witness further monetary policy easing, if exogenous factors including international oil prices, exchange rate, and emerging market yields are favorable”. Chief Economist added


Although the fuel subsidy reform was implemented in June, which typically affects the food and beverage inflation figure, food and beverage price inflation in July was higher than the June figure. Other major contributors that were largely priced in were housing and utilities, with prices rising 5.2% m-o-m following a 14.6% increase in the prices of electricity, natural gas, and other fuels products, contributing to 0.56% of the total monthly inflation figure. This was in addition to alcoholic beverages and cigarette prices rising 7.2% m-o-m after cigarette prices increased 7.6% m-o-m on cigarette tax reforms, contributing to 0.34% of total monthly inflation. According to Saada


It is worth mentioning that the Central bank of Egypt’s (CBE) Monetary Policy Committee (MPC) at its last meeting on 28 June 2018, kept its policy rates unchanged for the second time after 2 consecutive 100bps cuts in both February and March, signaling the start of an easing cycle. Yearly headline inflation decelerated to 13.5% in July from 14.4% in the previous month, with monthly prices increasing 2.4% from 3.5% in June, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS). Annual core inflation also decelerated to 8.54% in July from 10.91% in the previous month, with monthly core inflation decelerating to 0.58% from 1.62% in June, according to the data posted on the CBE website.


This content is just for general information.