Egypt’s inflation rate eased to 7.6 percent in March, breaking a three-month acceleration that drove the central bank to raise the benchmark interest rate for the first time since 2011.
Annual urban inflation was expected to climb to 8.8 percent from 8.2 percent the prior month, according to the median estimate of four economists surveyed by Bloomberg. The decline in March appeared linked to lower-than-expected increases in both food and non-food items, Mohamed Abu Basha, an economist at investment bank EFG Hermes (EFGD) Holding SAE, said by phone.
“We still think there will be an acceleration in inflation over the course of the year,” he said by phone from Cairo.
Rising costs in Egypt, fueled by a currency slump, have boosted opposition to President Mohamed Mursi, further stoking the instability that has gripped the country since the 2011 uprising that pushed Hosni Mubarak from power.
Egypt is in the midst of negotiations for a $4.8 billion International Monetary Fund loan that officials see as pivotal to unlocking billions more in foreign assistance to plug a widening budget deficit. The government faces a difficult task in trying to enact cuts, particularly on subsidies that consume over 25 percent of its spending, without triggering further unrest. The raising of butane canister prices at the start of the month has led to protests.
The decline in the inflation rate came a day after Egypt’s central bank increased deposit agreement sales by 64 percent in an apparent attempt to absorb excess funds before the consumer index figures were released.
The March figure was surprising “given the higher pace of devaluation in March, lack of foreign currency availability and fuel shortages which disrupt production operations,” Mona Mansour, chief economist at Cairo-based investment bank CI Capital, said in an e-mail. “With more devaluation to go, additional reform progress and expected supply disruption — with more power cuts in summer time — inflation is to remain a mounting risk.”