The decrease in the prices of fruits, vegetables, and poultry led to a decline in the annual headline rate of inflation down to 15.6% by the end of November against 17.7% in October, according to the Central Agency for Public Mobilisation and Statistics (C APM AS). In its recent report, the CAPMAS noted that the Consumer Price Index (CPI) recorded 309.1 points in November, down by 0.7% in November against 2.6% in October. The CAPMAS explained that this decline in inflation is due to lower prices of vegetables, listed in the basket of goods, which measures inflation, by 3.4%; fruit prices down by 8.9%, and poultry prices down by 1.7%. Meanwhile, the CAPMAS noted that milk, cheese, and egg prices increased by 0.6%, while the prices of clothing and shoes increased by 1.8%. The decrease in inflation further consolidates uncertainty about the upcoming decision of the Central Bank of Egypt (CBE) on interest rates when the Monetary Policy Committee (MPC) meets on Wednesday 27 December. The MPC has decided on 15 November to keep overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 16.75%, 17.75%, and 17.25%, respectively. The discount rate was also kept unchanged at 17.25%. The MPC had explained that as headline inflation for October 2018 was affected by a higher-than-forecasted increase in the prices of fresh vegetables, there is an upside risk of a slight deviation from the inflation target announced in May 2017, which records 13 percent (±3%) on average during the fourth quarter (Q4) of 2018. Monthly core CPI inflation, computed by the Central Bank of Egypt, recorded 0.5% in November 2018, compared to 1.0% in October 2018. The annual core inflation rate recorded 7.9% in November compared to 8.9% in October. “However, monetary policy tools are utilised to anchor inflation expectations, contain demand-side pressures and second-round effects of supply shocks. Given the contained underlining inflationary pressures and the transitory nature of the supply shock related to select fresh vegetables, the MPC determined to keep key policy rates unchanged,” the committee stated. It added that current policy rates remain in line with achieving single digit inflation as soon as the effects of fiscal consolidation measures dissipate. The ministry of finance is targeting to achieve a primary surplus of 2.0% of the GDP in fiscal year (FY) 2018/19, up from a preliminary 0.2% in the previous year. In its recent monetary policy report the CBE stated that as the recently implemented fiscal consolidation measures were anticipated, the MPC decided that existing policy rates remain appropriate tin order to align the inflation outlook with the targeted disinflation path announced in May 2017. It added that the outlook for the annual headline inflow continues to record 13% (±3%) on average in (Q4) of 2018 and single digits after the temporary effect of fiscal supply shocks dissipates. The inflation outlook continues to accumulate the upwardly revised Brent crude oil prices at $76.7 per barrel during FY 2018/19, which had reflected the materialisation of an upside risk to the inflation outlook. International food price forecasts, relevant to Egypt's consumption basket, were upwardly revised primarily due to of higher prices of wheat and sugar as a result of bad weather conditions affecting production prospects for both crops. In addition to international commodity price developments, risks from the external economy continue to include the pace of tightening financial conditions as well as trade tensions, according to the CBE. Meanwhile, domestic risks surrounding the inflation outlook continue to include the timing and magnitude of potential fiscal consolidation measures and supply shocks, the evolution of inflation expectations, as well as demand-side pressures.
