(Bloomberg) -- Annual inflation in urban parts of Egypt grew at a slower pace in December, potentially clearing the way for the central bank's focus to be on the global impact of the pandemic when it mulls upcoming rate decisions.
The year-on-year inflation rate slowed to 5.4% from 5.7% in November, the state-run statistics agency CAPMAS said on Sunday. That puts the average rate for 2020's final three months at 5.2%, according to Bloomberg calculations -- significantly below the central bank's target of 9%, plus or minus 3 percentage points.
On a monthly basis, consumer prices reversed and hit their lowest level in about 18 months in December. They contracted 0.4%, compared with month-on-month expansion of 0.8% in November.
Food and beverages, which comprise the largest single component of the inflation basket, fell 1.2% on a monthly basis. It's a decline that is generally expected at the end of the year due to discounts over the holiday season, according to Radwa El-Swaify, head of research at Cairo-based Pharos Holding.
Core inflation, the gauge measured by the North African nation's central bank that strips out volatile items, was 3.8% year-on-year.
The bank held its benchmark rate on Dec. 24, saying that average inflation in the fourth quarter of 2020 was likely to come under its target floor of 6%. Its next rate meeting is set for Feb. 4.
“Since inflation is not expected to face major spikes in 2021, the interest-rate decisions in the first quarter will be largely reliant on global developments,” said El-Swaify
Inflation rates will probably “be affected by unfavorable base effects related to the normalization of monthly inflation rates in 2021,” but will remain around a target of 7%, plus or minus two percentage points, for the fourth quarter of 2022, the central bank said last month.
Egypt could see a 50 basis-point cut next month “if global monetary conditions and foreign-currency inflows are supportive,” El-Swaify said.
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