Why has the annual inflation rate in May fallen to its lowest level in more than two years?
Sunday 10 June 2018
I wrote – Yasmin Salim:
Annual inflation fell in May, hitting its lowest level in more than two years.
The annual rate of inflation in prices of the republic declined in May to 11.5 percent from 12.9 percent in April, the lowest level since April 2016, at 10.9 percent, according to a statement issued by the Central Agency for Public Mobilization and Statistics (CAPMAS) on Sunday.
Analysts say that the annual inflation rate for May, fell in contrast to previous forecasts.
The targets will be achieved
According to Radwa Suwefi, head of research at investment bank Faros, Lamasrawi said the May inflation rate was better than expected, saying the figure was “strong.”
Beltone Investment Bank’s research note said that annual inflation fell significantly in May, down from our previous forecast of 13%.
The fall in inflation came in support of lower food and drink prices, which fell from 11.1 percent in April to 8.6 percent in May, Belton said.
Monthly inflation was a “positive surprise” in May, Beltone said.
A statement from the Central Agency for Public Mobilization and Statistics said that monthly inflation rose by 0.3% during the month of May, compared to April.
Despite the rise in monthly inflation, however, the pace of decline fell compared to the month of April, which recorded 1.5%.
Radwa al-Suweifi expects inflation to end this year at 13%, the target rate set by the central bank.
The central bank aims to reach an inflation rate of between 10 and 16% during the last quarter of 2018.
Since the decision to float the pound in November 2016, annual and monthly inflation rates have risen significantly, reaching record levels.
“Despite expectations that monthly inflation will rise over the next three months as a result of the government’s intention to raise fuel and electricity prices, we will end the year at the target,” Radwa added.
The government is moving to raise fuel and electricity prices in the coming period, after reducing the proportion of subsidies allocated to energy and electricity in the new state budget.
Interest is stable
Radwa does not expect the central bank to cut interest rates at the Monetary Policy Committee meeting at the end of this month.
“I expect the central bank to set interest rates during the committee meeting, partly because we are preparing to raise subsidies on petroleum products, as well as the direction of foreigners to exit emerging markets, which will push the centralization of the installation,” she said.
Beltone Investment Bank also expects to keep interest rates at the Monetary Policy Committee meeting on June 28.
The central bank began to shift its aggressive monetary policy to expansionary policy in mid-February when it cut its deposit and lending rates by 1 percent to 17.75 percent and 18.75 percent, respectively.
The central bank cut interest rates by 1% at the end of March, to 16.75% on deposits and 17.75% on lending, for the second time in less than two months, affected by lower inflation.
He said in a research note that the ease of inflation readings during this month will give a breather to inflation with the expected increase in energy prices.
Beltone expects energy prices to rise by 35 to 45 percent over the next month.
He said the increase in fuel and water prices would add between 3 and 5 percent to the core inflation rate during the third quarter of this year.