Egypt inflation shows an alarming slide for the economy

The urban inflation level is at its lowest since December but experts expect it to pick up in August as consumer expenditure increases significantly during the holy month of Ramadan

The decline in Egypt's inflation rate to 10.4 per cent announced today initially seemed positive, but a look at the details is more worrying, say experts.
Annual inflation rate fell well below estimated rates, with year-on-year urban inflation dropping from a hefty 11.8 per cent in June 2011 to 10.4 per cent in July 2011.
Monthly urban inflation edged to 1.2 per cent in July, up from 0.4 per cent back in June.
The figures were announced on Wednesday by Egypt's official statistics body CAPMAS.
Partly the decrease is mathematical, with July 2011 being compared to July 2010, when local food costs soared in step with global food prices.
"The decline in annual inflation rate appears to be attributable to high baseline effect ... [The main] inflation drive at the time [last year] have been sharp increases in the price of food against the background of rising global food prices," Giyas Gokkent, chief economist at the National Bank of Abu Dhabi, told Reuters.
On the other hand, not all decreases are good.
"From the outside the new inflation figures seem positive, but examining the details proves alarming for the economy as a whole," says Monette Doss, research manager at Prime Holdings.
Demand for goods and services other than the basics have shown slower growth, which is a negative indicator for the health of the Egyptian economy, explains Doss.
Percentage increase in food and beverages exceeded the increase of the whole Consumer Price Index (CPI). It reached 16.0 over the year July 2010-2011.
The June-July monthly increase was 1.9 per cent.
Foodstuffs constitute 44 per cent of the total items included in Egypt's weighted basket of commodities used to measure inflation.
"Demand for food will remain high and demand for other goods and services remains limited, no significant change in inflation should appear," says Doss.
Egypt's GDP saw negative growth of 4.2 per cent in the first quarter of 2011 as the popular uprising took its toll on economic activity in the country, especially tourism and manufacturing.
The urban annual inflation rate for utilities and housing, along with hotels and restaurants reached 1.2 per cent and 12 .4 per cent respectively.
Bread and cereals, and vegetables were the two main categories contributing to the climb in food prices, seeing annual increases of 33.8 per cent and 31.4 per cent respectively.
Rice was the foodstuff that really soared, its price rising 81.77 per cent throughout the year.
Inflation will hit harder on soaring food prices
Although this July scored the lowest urban inflation level since December 2010, it is expected to pick up during August, as consumer expenditure increases significantly during the holy month of Ramadan.
Prime Holding expects urban inflation rate to remain in vicinity of 11 per cent for the remainder of 2011. Beltone Financial is expecting an inflation rate of 11 per cent in August.
Egypt's core annual inflation slightly decelerated to 8.71 per cent in the year to July from 8.94 per cent in June, the central bank said on its website on Wednesday.
Core inflation strips out subsidised goods and volatile items including fruit and vegetables.
(Additional reporting Ahmed Feteha)