In the data released by the Central Bank, Egypt’s inflation rate fell to 29.7% in May from 31.5% recorded in April, which is the first decline since the currency was devalued seven months ago.
The data also revealed that year-on-year core inflation declined to 30.5% in May, down from 32.1% posted in April. Core inflation excludes volatile commodities such as food and energy.
Egypt floated its currency in November to meet a key demand set by the International Monetary Fund in exchange for a USD12 billion loan to support the country’s economy which has been struggling since 2011 uprising that toppled longtime autocrat Hosni Mubarak. Other austerity measures undertaken by Egypt in order to qualify for the loan included the cutting of fuel subsidies.
The IMF, which predicted in January that inflation would come down by the second quarter of 2017, had paid out an installment of USD2.75 billion in December and has preliminarily approved another USD1.2 billion instalment.
Dubai-based Arqaam Capital expects inflation to soar again in the coming months due to fiscal reforms and seasonal factors including the holy month of Ramadan, when consumption rates increase significantly, and high summer electricity consumption. It welcomed the drop but said it did not necessarily mean the worst was over yet for Egyptian consumers.
Egypt is expected to enact a second round of economic reforms at the beginning of the fiscal year 2017/2018, the budget of which is set to be approved by parliament before the start of July. President Abdel-Fattah el-Sissi had pleaded to Egyptians to bear the austerity measures, saying the reforms are necessary to spur economic recovery, reduce the budget deficit and gain the confidence of international investors.
Late last month, Egypt announced a USD2.49 billion package of income tax discounts, bonuses for state employees, increased pension payments and cash subsidies for lower and middle-income Egyptians to cope with the soaring prices, in an attempt to defuse discontent. The Cabinet has said the package will go into effect July 1.