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Inflation sees slight drop to 20 pct
Published in Daily News Egypt on 10 - 11 - 2008

CAIRO: Driven by a decline in food prices, inflation in Egypt fell for the second consecutive month to 20.2 percent in the year to October.
In the midst of a year that has seen price hikes across the board, urban headline inflation, announced state statistics agency CAPMAS, came in at 20.2 percent in October, down from 21.5 percent in September.
This decrease, though, was less significant than the decline in September, which was down from 23.6 percent in August.
The Consumer Price Index (CPI) was also down by 0.1 percent this month, largely due to a decline in food prices.
Food prices were down 1.4 percent in October, compared to a more anemic slide of 0.1 percent in September.
Some analysts worry, however, that given the structure of the CPI, data showing a decline in inflation may not accurately reflect the cost burdens that have been imposed on the consumer.
The CPI is a measure of a basket of goods and services that a representative household might be expected to purchase. It is meant to reflect all around needs of the household.
In Egypt, with food prices as high as they are and wages so low, food carries unusually high weight in the measurement of the CPI.
"This emphasizes the bias of the CPI weights to food and beverages, constituting 44 percent of the overall CPI, effectively diluting the increase in the prices of other items in the Index, wrote Reham ElDesoki, an economist at the Egyptian investment bank Beltone.
Monette Doff, a senior analyst at Prime Securities, argued that given income levels, food carries appropriate weight in the CPI.
"Most of the expenditures are food and basic items because Egypt is a low-income country, said Doff.
Despite the encouraging set of numbers this month from CAPMAS, prices in many industries continue to rise.
Clothing, housing and utilities, furniture, transport, recreation, hotels and restaurants and education have all suffered from a month-on-month price increase.
"With the slower rise in domestic food prices, noted ElDesoki, "inflation continues to decline despite the evidence of inflationary pressures from other items.
ElDesoki and Beltone expect to see inflation continue to shrink over the next couple of months, though perhaps at a slower rate.
"We believe inflation will continue to decline at a slower pace as the pass-through effect of lower international food prices is counterbalanced by the increase in food prices in the lead up to the religious holiday season in early and late December, she said.
"We expect inflation would end the year around 19 percent, depending on the effect of the latter factors.
The general decline in inflation is largely due to the strenuous efforts undertaken by the government to tackle the problem.
The Monetary Policy Committee (MPC) at the Central Bank raised interest rates six times in an effort to control inflation, but kept rates steady after its latest meeting this past weekend.
In a recent interview, Finance Minister Youssef Boutros Ghali indicated that the MPC may be forced to take a new approach with interest rates given the current slowdown in the global economy.
Analysts agree.
"They might decrease the interest rates in January or February 2009, said Doff. "Once
prices lower, they can decrease rates and encourage investment. To Egypt's detriment, though, its inflation is partially out of its control. As one of the world's main food importers, the country also has a tendency to import its inflation. In the near-term, however, high levels of food imports could help drive down inflation, say some analysts.
Inflation, argued Doff, "is a function of international prices, so if international food prices keep going down, then inflation will continue to fall.


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