CAIRO – Although Egypt's consumer price index (CPI) eased to 10.4 per cent in July, the lowest since December, the man in the street is squeezed between price hikes and a low income. Analysts say that the July inflation "was lower than expected," citing spiraling demand and higher consumption rates in the holy Muslim month of Ramadan, which started on August 1 and is expected to end on August 30. Urban inflation slowed to 10.4 per cent in July from 11.8 per cent in June, according to the State-run Central Agency for Public Mobilisation and Statistics (CAPMAS). "Theoretically this is a good sign. As economic growth has taken a blow because of political unrest, there are fears that Egypt will suffer from stagflation; a state of recession and higher inflationary pressures will hit the economy," Suheir Wagih, an economist at Cairo-based Future Investment Consultants, told the Egyptian Mail in an interview. The country's core annual inflation also fell to 8.71 per cent in July from 8.94 per cent in the previous month, according to the Central Bank of Egypt (CBE). CPI measures weighted price movements of consumer goods and services, which constitute a representative "consumption basket" purchased by households. Core inflation takes out fruit, vegetables and energy from CPI components to reveal a stable reading of price levels. Core inflation rates are calculated by removing the direct effect of price movements in those items that tend to exhibit "undue volatility" and are often not reflective of the underlying or persistent inflation pressures on the economy. "Officially, the CBE takes core inflation into account when setting up its monetary policy. It is expected that the CBE will keep interest rates unchanged when its monetary policy committee meets on August 25," Wagih said. But how come the man in the street always complains about increasing costs of living in Egypt? "Food items account for nearly 40 per cent of the CPI. Prices generally rise in Ramadan due to higher demand. August inflation will be higher. By mid-September, the CPI figures will be revealed," she said. Prices of grain and rice jumped by 61.1 per cent in July, according to CAPMAS. "Vegetables, food oils, sugar, dairy products and fruit rose by 31.4, 17.4, 11.6, 8.8 and 5.6 per cent respectively," CAPMAS stated on its website. Around 83 per cent of Egyptians increase their spending in Ramadan, according to the country's National Centre for Social Research (NCSR). Inflation reached a record high of 23.6 per cent in August 2008, according to CAPMAS. The Government slashed the prices of subsidised sugar, food oil, pasta and rice on ration cards by 50 per cent in August. More than 65 million Egyptians benefit from ration cards, which provide sugar, cooking oil and rice at subsidised prices, according to the Ministry of Solidarity and Social Justice. "Traders have increased prices. As retailers, we have to raise them too to keep our profit margin. It is a matter of supply and demand. In Ramadan, prices always shoot up," said Yasser Fekry, a retail store manager in central Cairo. "Rice, poultry and dairy products have risen most since the beginning of the holy month. Fish and sea food will rise at the end of Ramadan," Fekry added. Political uncertainty remains Egypt's most challenging dilemma since Hosni Mubarak was toppled six months ago on February 11. Earlier this month, the International Monetary Fund (IMF) expected Egypt's economy to grow at one per cent of GDP in 2011, "with economic contraction reaching seven per cent in the first quarter of the year." The Fund forecast the economy of the North African country would expand by six per cent in 2014 and 2015. But the IMF said inflation in Egypt would reach 13.5 per cent by the end of the year. "Inflation should gradually decline in the next years, to seven per cent in 2015," the IMF said. The Fund has warned that increasing prices of different commodities "may affect Egypt's growth rate in the future, and the prices will not decrease until 2012".
