Consumer Inflation Increases To 14 pct in Egypt Due To Ramadan

Egypt's urban consumer inflation jumped for a third straight month in June as consumer demand spiked during Ramadan, official data showed on Sunday.

Food demand normally surges during the Muslim holy month because of heavy consumption following the dawn-to-dusk fasting period. Ramadan this year began on June 6 and ended on July 5.

Urban consumer inflation accelerated to 14 percent in June from 12.3 percent in May, the statistics agency said.

Core inflation, which excludes items such as fruit and vegetables because their prices fluctuate widely, rose to 12.37 percent year on year in June, up from 12.23 percent in May, the central bank said on Sunday.

"I think the 14 percent increase was largely seasonal ... a large part of the food inflation was in fruit and vegetables, which are excluded from core inflation. It increased year on year from 19 percent in May to 33 percent in June," EFG Hermes economist Mohamed Abu Basha said.

The import-dependent country of 90 million people has been under pressure since a 2011 uprising drove away tourists and foreign investors, straining foreign reserves that halved to $17.5 billion in June.

The central bank, which aims to increase reserves to $25 billion by year-end, devalued the Egyptian pound in March by about 13 percent and increased interest rates a few days later by 150 basis points to curb inflationary pressures. It boosted rates again on June 16, by 100 basis points.

Economists say the higher rates should be enough to curb inflationary pressure.

The second of those increases was more than the market expected, Abu Basha said, adding that he expects inflation to ease in the coming months as a result.

Economists consider the pound overvalued still and expect another devaluation in 2016/17, which could stoke inflation. The government is also expected to raise energy prices and implement a value added tax (VAT) this year, increasing prices.

President Abdel Fattah al-Sisi is under increasing pressure to revive the economy and keep prices under control to avoid any backlash from the public whose protest demands in the 2011 revolution included "bread, freedom and social justice".

The government said late last year that it would control the prices of 10 essential commodities to help to restrain inflation. Price movement subsequently eased but surged back again after the March devaluation.

Credit:Reuters