Egypt's food prices declined for the second straight month, as the coronavirus pandemic stunted purchasing power and hit employment.
Food and beverage prices, which make up the largest single component of the inflation basket, fell 1.4% from May's level, according to the state-run statistics agency CAPMAS. Meanwhile, the annual figure accelerated in June to 5.6% from the previous month's 4.7%. Analysts had expected a rise on the back of last year's unfavorable base rate.
A spike in demand for essential goods in March and April, due to the pandemic, “gradually normalized over the past two months,” said Radwa El-Swaify, head of research at Cairo-based Pharos Holding. In addition, “purchasing power weakened due to salary cuts and higher unemployment” that resulted from the virus-related economic slowdown, she said.
”The drop in food prices is typical of this time of the year,” Mohamed Abu Basha, head of macroeconomic research at Cairo-based EFG Hermes, said. But “weak consumer demand on the back of Covid-19 is not to be ignored.”
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Egypt is trying to mitigate the impact of the pandemic. While economic growth had come in at 5.4% from July to March, officials have cut projections for the fiscal year that started this month. Officials have said the depth of the slowdown depends on when the contagion will subside.
The ripple effect has been felt throughout the nation of more than 100 million, with more than 25% of employed Egyptians losing their jobs between the end of February and May. At the same time, about 70% of households saw their income fall since the virus gripped the nation earlier this year, according to a CAPMAS study released last month.
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The cooling down in the price spike was also evident in the month-on-month rate, which inched up just 0.1% in June after remaining flat in May.
“Monthly inflation remains quite contained in spite of seasonality, reinforcing our view that demand pull factors are significantly low this year,” said Allen Sandeep, director of research at Cairo-based Naeem Holding.
The annual rate, even with the acceleration, remains well under the central bank's fourth quarter target of 9% (+/-3 percentage points). That takes some pressure off the regulator as it looks to mitigate the impact of the pandemic on the Arab world's most populous nation.
©2020 Bloomberg L.P.
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