CAIRO: Urban consumer inflation in Egypt fell to 10.2 percent in May 2009, from 11.7 percent in April, according to figures released Wednesday by the Central Authority for Public Mobilization and Statistics (CAPMAS). Nationwide inflation came in at 9.8 percent for the 12 months to May as prices of food and beverages, hotels and restaurants, and miscellaneous services increased. The urban inflation figure was higher than the 9 percent forecast by Cairo-based investment bank Beltone Financial. "We had anticipated that inflationary pressures and changes in prices on a monthly basis will lead to annual headline inflation of 9.5 percent, with an underlying 0.5 percent monthly increment in May, said a statement sent to Daily News Egypt. "With the monthly change registering a higher level and leading to higher annual inflation, domestic demand appears to continue to be resilient, given that no specific events in May would have led to higher food prices, the statement continued. Inflation has seen a dramatic decline since August 2008, when it peaked at 23.6 percent. This past February, inflation dropped to 13.5 percent, then 12.1 percent in March and 11.7 percent in April. Accordingly, the Central Bank of Egypt (CBE) has lowered the main interest rates three times between February and May, bringing overnight deposit rates to 9.5 percent and overnight lending rates to 11 percent. CBE Governor Farouk El-Okdah told the local media recently that he expects inflation to decline to around 10 percent in June. Passant Fahmy, a consultant at Egyptian Saudi Finance Bank (ESFB), said that while this was positive news, inflation should be even lower in light of the continued decline in global prices. "We don't see [the international price decline] fully reflected in the Egyptian market because still there are still monopolistic practices even though the Ministry of Trade and Industry has enforced several regulations to stem these practices, she added. Two factors cause inflation to rise, Fahmy said, an increase in demand or a spike in production costs, neither of which are currently taking place in the local or international market. "The positive aspect of the global crisis is finally being felt in the Egyptian economy, Abdel Fattah El-Gebaly, economic expert at Al-Ahram Center for Political and Strategic Studies, said, "after seeing our share of the negative effects, mainly a decline in GDP and decreasing tourism revenues. It's important to "check which sectors contributed the most to the decline in inflation, said El-Gebaly, in order to determine which segment of society will benefit most from the fall. According to Nielsen research company, food prices increased 9.8 percent in the year to March 2009, groceries 15.5 percent, confectioneries 8.7 percent, beverages 0.2 percent and household items 17.6 percent. More rate cuts? For her part, Fahmy said she hopes the CBE continues cutting interest rates as it has in the past several months because this will stimulate the market and it is the normal action to take when inflation declines. Falling prices encourage people to consume, which in turn encourages banks to lend on the confidence that producers will meet loan commitments. On the other hand, Beltone said it expects the CBE to hold its interest rates steady when it next meets in June, "given that the May data reflects a rise in monthly inflation, albeit by a lower magnitude on the urban level - and that we expect more inflationary pressures going into the summer months, Ramadan and the related religious holidays, with the second half of the year usually being a period when inflation is higher. Ismail Hassan, former CBE governor and current CEO of Misr Iran Development Bank, did predict what will become of interest rates, but did say that the CBE will take "inflation into consideration along with other elements in the economy. CBE's Monetary Policy Committee (MPC) is set to meet later this month.
