Egypt March inflation seen topping 9 pct
By Asma Alsharif:
Egypt's inflation rate probably jumped to above 9 percent in March as a currency crisis and fuel shortages continue to strain living costs in the ailing economy, four economists said.
The official consumer price index, which rose to 8.2 percent in February, is due out early on Wednesday and is set to show more bad news for government efforts to contain a deepening economic crisis.
Egypt's foreign reserves dropped to a critical low of $13.4 billion in March - less than three months' imports - and the pound has lost more than 9 percent against the dollar this year, raising the cost of imported goods.
The sliding currency helped push up food prices in February when overall inflation in towns and cities jumped to 8.2 percent year-on-year from 6.3 percent in January.
"With no sign of an end to Egypt's inflationary woes, we can well anticipate the March figure to be over 9 percent year-on-year," said Oliver Coleman, an analyst at Maplecroft, a global risk and consulting firm.
"A further dip in currency reserves, the spiraling cost of imports, and continuing drops in the value of the Egyptian pound will ensure that the official CPI continues to climb," he said.
CI Capital chief regional economist, Mona Mansour, expects urban inflation to reach 9.4 percent in March, driven by the depreciation of the local currency, the dearth of hard currency and the shortage of fuel.
Egypt, which subsidizes fuel, is under pressure to lower its budget deficit to secure a $4.8 billion loan from the International Monetary Fund in ongoing negotiations.
The government is working on an economic programme including cuts in fuel subsidies. Last year it eliminated subsidies on 95-octane gasoline, the highest grade available, and it raised fuel prices in many other sectors in February.
Last week it increased the price of cooking gas cylinders sold for domestic use by 60 percent to 8 Egyptian pounds ($1.17)a bottle, and doubled it for the bigger bottles used by businesses.
"The most basic necessities have all seen enormous increases. The lifting of subsidies on cooking oil is only the latest blow, as the price of staple foods has increased beyond the reach of most poor Egyptians," Coleman said.
"With fuel shortages seriously taking their toll, many are now relying on black market traders, who charge exorbitantly high prices. Fundamentally, the cost of living is becoming dangerously unsustainable," he said.
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Giyas Gokknet, group chief economist at National Bank of Abu Dhabi, disagreed with the other economists on the March inflation rate, forecasting it would stay at around 8 percent, but sees it rising to around 10 percent in the second half of the year.
"The direct cause of higher inflation has been the depreciation of the Egyptian pound and a rise in prices of imported goods. The pound weakened sharply since the end of 2012, but the pace of depriciation eased in March," Gokknet said.
Analysts say official inflation figures hardly reflect the price hikes facing ordinary Egyptians. Those pressures will increase further in the coming months if the government reaches an agreement with the IMF on a $4.8 billion loan as that would be conditional on more austerity measures.
"Further falls in the pound and, if the authorities reach an agreement with the IMF, subsidy cuts will push inflation higher," said Jason Tuvey, assistant economist at Capital Economics. "Indeed, we expect inflation to average double-digits over the course of this year.
"The upshot of this is that the prospect of higher inflation may make the government more reluctant to undertake the reforms required by the IMF," he said. ($1 = 6.8490 Egyptian pounds)
Reuters
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